Why Sweden copies German wage moderation
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Why Sweden copies German wage moderation
Why Sweden copies German wage moderation

By Will Denayer and Heiner Flassbeck

Wages need to rise in sync with productivity growth plus inflation. If wages do not follow productivity growth, innovation stifles and productivity declines. Sweden also suffers, although it is not a member of the euro zone.

The IMF recently criticised Sweden because its wage increases are too low in relation to how the domestic economy is developing (see here and here). Sweden should look less at Germany, not bother with a largely non-existent wage drift and its social partners should not accept low wage increases. Currently, wage increases of 3% should be possible – the productivity trend is about 1% and inflation expectations are 2%. Instead, wages have increased by 2 – 2.5% in recent years. Sweden also suffers from declining productivity trend growth, which is a problem in all developed countries (see here). In Sweden, the trend declined from over 2% before the crisis to about 1.25% in recent years. The Swedish wage development increasingly follows the German one. The obvious argument is that Sweden’s wage growth must be in line with the rest of the world, otherwise it will price itself out of the market. But the IMF does not agree. Wages should increase with productivity growth, not with what competitors are doing. Swedish employers should pay more. Instead of looking at the Germans – Sweden’s main trade partner – Sweden should look primarily at its own productivity growth and its inflation expectations (see here). (...)


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2018 May 01 14:29

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