TUAC - TRADE UNION ADVISORY COMMITTEE TO THE OECD

19/11/2007

Overview

Two central economic policy concerns that TUAC raised in consultations with the OECD Ministerial Council in May 2007 were the need to reverse the declining wage share and increase in earnings inequality throughout the OECD area  and to rebalance growth among OECD regions at high levels of employment and reduce risks of a disorderly correction of trade imbalances. These remain central concerns. The declining wage share as well as rising earnings inequality has been confirmed in the OECD Employment Outlook and in the IMF’s World Economic Outlook. The unsustainable imbalances in global trade, in consumption and in savings constitute a threat to economic stability. However the TUAC statement in May was made against then relatively benign overall growth prospects for the world economy.

Those prospects look increasingly uncertain following the financial crisis of the summer that is still unfolding. Through the third quarter of 2007, economic growth has been strong in the U.S. and much improved in Europe and Japan. Demand from China and other emerging markets has powered rapid growth globally. However, the sub-prime crisis in the U.S. has triggered severe tightening of global credit markets and turbulence in global equity markets which are now threatening a serious deceleration of growth in the real economy in the U.S. and beyond. At the same time the rise in energy demand has also led to oil prices approaching 100$ per barrel – a quadrupling of price since 2004. Even if the oil intensity of output has been reduced since the 1980s, this will depress demand while raising headline inflation. Given their current account positions, consumer debt levels and overblown housing markets, the Anglo-Saxon economies and some others appear to be particularly at risk of a recession or even stagflation.

TUAC is therefore particularly concerned at the downside risks to the current outlook and we are calling for a coordinated government policy response. In the near-term, because of the global implications of slowing growth in the U.S., OECD member governments must coordinate monetary and fiscal polices to assure that the, now perhaps unavoidable, re-balancing of exchange rates which up to now has involved almost exclusively the euro-dollar relationship, takes place in the context of robust growth to prevent unnecessary unemployment and continued stagnation of wages.