During the 'big recession' many governments have
deliberately repressed salaries, usually via structural reforms, in order to
gain competitivity. However, repression of salaries increases inequality,
social discontent and often has counterintuitive effects. Salaries are a cost
for companies, but they are also the basis for the demand for the goods and services
they offer: people with little income cannot afford them. Scientific studies
have shown repeatedly that economic growth generated via salary increases does
not endanger the creation of employment, but rather reinforces
it. In most countries, the 'positive effect of salary increases' eclipses any
possible negative effects on export competitivity and even any detrimental
effect on investment. A good example of such a study is the work of ONARAN and OBST
on Wage-led Growth in the EU15 Member States (2016). This positive dynamic has been highlighted in the
model by prominent arrows. The policy implications for governments are clear!
