The first effects of the coronavirus hint to the

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economic recovery. The first effects of the coronavirus hint to the precarious position of the global economic system after a decade of stagnation and persistent compression of aggregate demand. Employment and wages are not the residual of increased productivity and firms’ profitability, rather a major driver of consumption and, thus, business sentiment, investment and growth. Yet and again, structural reforms in the past decades have mostly been one-directional and intended to fix the supply, with the idea that boosting competition would increase production, which would in turn create its own demand. When employment legislation is discussed, it is only to the detriment of job security and the workers’ rights (“flexibilisation”), prominently seen as a cost to the single employers. In order to recover employment levels, policy makers primarily engage in skilling policies, i.e. reforming education curricula to match the needs of the labour market, and re-skilling, e.g. active labour market policies for the unemployed. Matching labour supply and demand does not automatically guarantee equal levels of income and job security, unless complemented with employment protection legislation, minimum wages and strengthened collective bargaining systems. Governments have failed to notice the fallacy of composition that manifests when employment and wages are compressed, resulting in a fall of productivity and the net
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reduction of consumption capacity in the economy. Recent findings suggest that the decline in unionisation rates is accountable for the drop in productivity, because it incentivises less efficient firms competing solely on labour cost to cut wages rather than invest in increasing productivity (Dosi et al., 2020). At the micro level, this leads to the high dispersion of productivity among firms, while on the macro level it is responsible for the fall in productivity, wage share and further drop of unionisation rates: according to OECD estimates, collective bargaining coverage in OECD countries has dropped from 38% in 1998 to 32% in 2017 (Figure 5). Trade union density has also fallen, with most prominent cases being Sweden (from 92% to 65% of the total employed), the Czech Republic (from 32% to 12%), Hungary (from 27% to 8%), Finland (from 78% to 60%), Ireland (from 40% to 24%), but also Germany (from 25% to 17%), the Netherlands (from 24% to 17%), the United Kingdom (from 30% to 23%), Japan (from 22% to 17%) and the United States (from 13% to 10%). Figure 5 Collective bargaining coverage in OECD countries, % of total employees, 1998-2017 Source: TUAC elaboration based on OECD (2020), Trade Unions and Collective Bargaining database. The time is overdue to re-think national and international priorities for enhancing growth, having in mind that most developed economies are wage- rather than profit-led. As such, more space must be granted for public expenditure (including addressing the challenges of the not-so-distant future, from demographic aging to climate change, industrial transition and digitalisation) and private consumption, through higher wages and more certainty about future employment prospects.
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