The Wages of Wage Fear

LONDON – If all else fails, try the previously unthinkable. It is not a bad principle for economic policy in the best of times. Today, it may be just what is needed: many Western countries – certainly the United States, Japan, and Germany, probably the United Kingdom, and soon much of the rest of the eurozone – should pursue direct government intervention in wage bargaining, especially for the lowest earners.

Japan has spent the last 15 years struggling with slow growth, anemic household demand (especially among poorer families), and rising inequality and poverty. Similar conditions now prevail in the US as well; indeed, they helped Donald Trump to be elected president, by creating a sufficiently large group of what he quite reasonably called “forgotten Americans.” And before Trump’s victory, such conditions spurred the UK’s so-called “left behind” to vote for Brexit.

Without a sharp increase in wages – mainly statutory minimum wages – populism will continue to thrive, and most Western economies will remain saddled with slow growth. Inequality not just of income and wealth, but also of perceived political voice and influence, will continue to grow. And the temptation to pursue shortsighted solutions – such as closing borders and implementing protectionism – will become irresistible.