The March to protect Worker Rights and the Middle Class

Cathy Feingold

Thousands are marching in the streets of Wisconsin, Ohio and Indiana. In March 2011, sparked by protestors in Madison, Wisconsin, workers and union members across the United States have rallied in front of statehouses in support of collective bargaining rights for public sector workers. Demonstrators are speaking out against attacks by their Republican governors to eliminate collective bargaining rights and blame public employees and their unions for widespread budget crises.

The protestors are the young, joining the old. Some of them remember Madison as the centre of anti-war protests in the 1960s. For others, this is their first protest. As young activists organise teach-ins and rallies across college campuses and town halls, a new generation redefines its relationship to unions. This new generation recognises that unions provide one of the few ways that regular workers, including public employees, can fight back against the increasingly powerful networks of corporate executives and the politicians who do their bidding.

Unions in the United States face one of the greatest challenges to protecting public sector workers since the 1981 Patco (Professional Air Traffic Controller Organization) strike when President Regan fired striking air traffic controllers and paved the way to allowing replacement workers. Americans understand that what is at stake is not only the wages and benefits of public sector workers but their right to bargain collectively. While Republican governors claim that the budget deficit drives their decisions, their real agenda is to attack collective bargaining rights and weaken unions.

The protestors march across state capitols that are also sites of struggling economic recovery. With US unemployment sticking around 9% and underemployment close to 16%, and with slow job growth in only either low or very high skill sectors, most unemployed workers find it a real struggle to secure a mid-level position. With the loss of higher paying union manufacturing jobs, many workers look to the public sector for a foothold in the middle class. Yet state budgets are suffering from the negative revenue consequences of high unemployment and falling home prices. The proposed elimination of collective bargaining, by making it even harder for public sector workers to maintain their standard of living (be consumers, buy houses, etc) will only serve to further damage state budgets and harm the overall economy.

Americans understand that the road to economic recovery remains fragile and that continued unemployment and rising oil and food prices continue to threaten a full recovery. However, despite continued economic insecurity, Americans oppose any attempt to use the budget deficit debates as an excuse to strip them of the collective bargaining rights they fought so hard to obtain. In the latest polling by Bloomberg, 64%[1] of Americans - both Democrats and Republicans - support the right to collective bargaining for public sector workers. Sixty-three percent, including 55% of Republicans, say states facing a deficit, and claiming that they cannot pay for all the pension benefits promised to current retirees, should not be allowed to break their commitments. Even after public sector workers have agreed to wage and benefit concessions, Republican governors have continued their targeted assaults on collective bargaining rights.

Why do these attacks continue when most Americans support the right of public employees to collective bargaining? It’s simple. The 2010 elections brought in a new group of Republican governors and legislators across the country who are putting forward legislation to eliminate or weaken unions — a key constituency and base of support for Democrats. The real goal of Republicans now is to reduce public sector unions (who now represent 36% of the public sector workforce) to the same paltry level as private sector unions, currently representing only 7% of the private workforce. In 2010, 7.6 million of the 14.7 million union members in the US worked in the public sector. By weakening the power of unions, Republican governors weaken the Democratic Party. Of course, this is not just an assault on unions, which have historically been a key support base for the Democratic Party, but on the middle class. In the US, the majority of workers receive minimum social protection from their employers. Defined pension plans have been replaced with privatised savings plans, called 401k plans, and workers pay higher premiums for health care coverage. Corporations, although currently sitting on $1.8-trillion in profits, claim that to stay competitive they cannot increase wages or provide more benefits. This model only contributes to the growing inequality in the country where the top 5% control 63.5% of the country’s wealth[2]. The US economy is now in a race to the bottom where workers are forced to compete for increasingly poorly paid, insecure jobs with no benefits.

The current debate over collective bargaining and unions relies on the false assumption that public sector workers caused the budget crises and must now pay the consequences by giving up their rights, wages and benefits. While public sector workers and unions are blamed for budget deficits, elected officials will not risk advocating for increasing taxes on the wealthy and on corporations as a sensible alternative to attacks on the middle class and regular workers. Most understand that to do so would jeopardise their access to funding for re-election campaigns.

In addition to Wisconsin, public employee unions now face attacks not only in union stronghold states such as New Jersey and Ohio but also in less-unionised Indiana and Michigan. The proposed anti-collective bargaining and anti-union legislation in these states would greatly reduce the ability of public sector unions to negotiate effectively contracts for workers and organise non-union workers. In Ohio, unions are working to defeat a bill that would limit collective bargaining for government workers and eliminate binding arbitration and the right to strike. For the moment, workers in Wisconsin have won their first victory. On March 18th, a judge issued a temporary restraining order blocking the plan by the Wisconsin governor to eliminate collective bargaining. Yet, this win is just the beginning of a longer, drawn out legal battle. These pieces of legislation are not about reducing the budget deficit but rather they were created to further weaken the middle class and the unions that represent them.

In reality, America’s budget deficits have not been caused by excessive compensation for teachers, firefighters and other public servants. The country’s budgetary woes are more related to the recent economic and financial crises in the housing market. The careless financial practices on Wall Street, not the greed of our kindergarten teachers, brought about the recession and its negative effects on employment and state budgets. The call for the elimination of collective bargaining and economic austerity will not address these root causes and but will only serve to dampen demand in the economy. The use of the current fiscal crisis by politicians to strip workers of their rights and impose severe reductions in wages and benefits will create greater hardship for workers and middle class families struggling to regain their footing.

[1] Bloomberg National Poll, March 4-7, 2011.
[2] Economic Policy Institute, available at:
http://www.epi.org/economic_snapshots/entry/top_5_holds_more_than_half_of_the_country’s_wealth/

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Cathy Feingold is the director of the AFL-CIO’s International Department. She previously directed the AFL-CIO Solidarity Center’s work in the Dominican Republic and Haiti, including worker education and advocacy training, and popular methodologies to research and document the problems of women and migrant workers. She led the organization’s humanitarian response to the January 2010 earthquake in Haiti.

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Global Wage Trends: The great Convergence?

Patrick Belser

Average wages

The financial and economic crisis has cut global wage growth by roughly half in 2008 and 2009. Based on a sample that covers a large chunk of the world’s 1.4 billion wage-earners, the Global Wage Report 2010/11(i) finds that the global growth in real monthly wages slowed from 2.7 and 2.8 per cent in the two years before the crisis (2006 and 2007) to 1.5 and 1.6 per cent in 2008 and 2009. If China – where data coverage is limited to fast growing “urban units” – is excluded from the sample, the average wage growth drops from 2.1 and 2.2 per cent before the crisis to 0.8 and 0.7 per cent in 2008 and 2009. In 2010, preliminary results suggest that wages have started to recover, but not as fast as profits and not yet to pre-crisis levels. Generally, wages have taken a bigger hit in developed than in developing countries.

This short-term cost of the crisis to workers must be understood in the context of a longer-term trend towards wage convergence across regions. Table 1, taken from the Global Wage Report 2010/11, shows that while average wages more than doubled in Asia since 1999 and more than tripled in Eastern Europe and Central Asia (which partly reflects the depth of the wage decline in the 1990s), wages stagnated in advanced countries, increasing by just about 5.2 per cent in real terms over the full decade. This is less than the rate at which Chinese wages grow in one year. The base from which Chinese wages are growing remains, of course, much lower. The average American worker still earns in about one month what a Chinese worker in the private sector earns in one year. The point, however, is that the gap is closing and that the economic and financial crisis – as well as the slow recovery of wages in the West – has accelerated this convergence.

Table 1 Cumulative wage growth, by region since 1999 (1999 = 100)

* Provisional estimate / ** Tentative estimate / … No estimate available
Source: ILO Global Wage Database.

One factor that contributes to the convergence is the faster growth in labour productivity in developing regions. Another factor is the apparent decoupling between productivity and wage growth in advanced countries. According to one calculation, while average wages in advanced countries grew by 5.2 per cent over the last decade, labour productivity increased by 10.3 per cent (see Figure 1). In other words, wages grew only half as fast as labour productivity. One simulation indicates that if wages had grown as rapidly as productivity, average wages in advanced countries could have gone up from roughly US$ 2,864 per month in 1999 to $3,158 in 2009 instead of only $3,012 (figures are expressed in 2009 PPP dollars). Distributed over all paid employees, this decoupling may thus have cost workers in advanced countries hundreds of billion dollars in forgone wages over the full decade. These resources have not exactly been lost to everyone – since they went into profits and investment. But this redistribution has certainly limited non-credit based household consumption, and at least partially explains the low interest rates that were needed in some countries before the crisis to keep consumption going.

Figure 1

Note: Since the indices refer to a weighted average, developments in the three largest advanced economies (United States, Japan and Germany) have a particular impact on this outcome.

The low pay crisis

The long-term losses to labour have not been equally distributed between all workers. Those who have suffered most from the decoupling are the workers at the middle and the bottom of the wage distribution. Those at the top have fared better, as indicated by the increasing gap between mean and median wages in many countries and epitomized by the ongoing bonus-bonanza among the world’s CEOs. While the highly educated elite has transformed into global “superstars”, workers with average skills have become the victims of the global compression in labour costs.

It is at the bottom of the wage distribution that things have deteriorated the most. This is revealed by the steady increase in the share of workers on “low pay”, defined as the proportion of workers whose hourly wages are less than two thirds of the median wage across all jobs. The latest figures show that since the second half of the 1990s, relative low pay has increased in about two thirds of countries (25 out of 37 countries). In advanced countries, low pay now afflicts about one in every five workers, or about 80 million people. At the country level, the incidence of low-wage employment still shows considerable variation. When full-time workers are considered, the incidence of low-wage employment varies from less than 10 per cent in Sweden and Finland to about 25 per cent in the United States and the Republic of Korea.

But low pay is not just a problem in developed economies. Case studies show that in recent years low-paid wage work has also increased in a number of developing countries, for example China, Indonesia or the Philippines. What differs, of course, is the context, which is much more dynamic in emerging economies. While low pay in advanced countries is often the outcome of stagnating or decreasing incomes at the bottom, low pay in rapidly growing developing countries has more to do with the rapid progress of the middle class. This, however, does not mean that low pay is not a policy issue in emerging economies. The labour unrest in Chinese factories in 2010 showed that low paid workers expect their conditions to improve in line with overall social and economic progress.

Policy options

Wage trends seem to point towards the complex process of global integration, where average wages converge towards the (stagnating) levels of advanced countries and where inequality between top and median, and median and bottom wage-earners increase almost everywhere. There are exceptions, of course. This trend nonetheless points towards the importance of international coordination on wage-related matters. The collective action problem is particularly acute in the Eurozone, where any country’s attempt to link wages more closely to productivity growth immediately leads to a decline in external competitiveness relative to Germany – the star-performer where average wages actually declined by 4.5 per cent over the last 10 years despite a (modest) increase in labour productivity. Outside of the Eurozone, wage compression in China similarly limits the room for wage increases in other emerging economies.

At the national level, countries should be encouraged to support low-paid workers through a combination of minimum wages and income transfers. Minimum wages have the potential to make a major contribution to social justice. In the United Kingdom, for example, the minimum wage was identified in 2010 as the most successful government policy of the past 30 years in a survey of British political experts. In this survey(ii) , a successful policy is defined as one which is successfully implemented, has a positive social and economic impact, and can be sustained over time. Perhaps most importantly, the much-feared negative impact on UK jobs failed to materialize. The positive effect of the minimum wage has been compounded by the working tax credit, a system of so-called “in-work benefits” that reduces taxes for the low-paid who work for a minimum of 16 hours per week. Both minimum wages and “in-work benefits” are complementary, for without the former, companies may feel that they may quite simply shift some labour costs onto tax credits.

The minimum wage can have a positive impact in developing countries too. In Brazil, a country with a large informal economy, the two policies that are most frequently credited for the sharp reduction in poverty and inequality over the last decade are the Bolsa familia – a programme of cash transfers conditional upon children attending schools – and the national minimum wage that has been revived since 1995. Even The Economist now recognizes that “by boosting domestic demand, these policies have also contributed to economic growth”.(iii) In countries such as India, minimum wages are being implemented along with employment guarantee schemes that set the floor for wages. One simulation shows that if the coverage of minimum wages were extended to all wage-earners in India instead of a select group, it could lift the incomes of 76 million low-paid salaried and casual workers.(iv)

(i) International Labour Office (ILO). 2010. Global Wage Report 2010/11. Available at:
http://www.ilo.org/travail/areasofwork/lang--en/WCMS_DOC_TRA_ARE_WAGE_EN/index.htm
(ii) See http://www.instituteforgovernment.org.uk/pdfs/PSA_survey_results.pdf
(iii) “Lula’s legacy”, 30 September 2010.
(iv) Belser, P.; Rani, U. 2010. Extending the coverage of minimum wages in India: Simulations
from household data, ILO Conditions of Work and Employment Series No. 26, 2010 (Geneva, ILO).

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Patrick Belser is the principal editor of the ILO Global Wage Report. Before working on wages, he spent 5 years with the ILO programme on fundamental principles and rights at work and co-edited a book called Forced Labor: Coercion and Exploitation in the Private Economy, published in 2009 by Lynne Rienner.

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The 2008 Crisis in Turkey and the Unions’ Response

Yasemin Özgün

Özgür Müftüoğlu

The insertion of the Turkish economy into global capitalism has mostly occurred during times of economic crisis. During the present crisis as in the crises of 1979, 1994 and 2001, the Turkish government took many steps according to the policy frameworks determined by global actors to integrate further into global capitalism. Such steps did yield some positive results for those sections of capital that could adjust to the rules of global competition and integrate with global capital. Nevertheless, Turkey’s survival strategy, which rested on cheap labour, has caused increased pressure on workers as well as high unemployment, poverty and job insecurity. Unfortunately, due to the prohibitions on union activities following the 1980 coup, combined with new work regulations deriving from changing production systems, the working class and unions did not have sufficient strength to resist this process.

In Turkey, the rules of the market economy, institutionalised in 1980, have attained their target thanks – to a large extent – to the policies implemented until the 2008 crisis. However, the process is not complete. The IMF and World Bank lending agreements, the reports prepared by the OECD, and the conditions imposed by the EU in the process of assessing Turkey’s membership have warned Turkey that it must complete its process of integration into the market economy.

Turkey achieved high growth rates until 2008, but workers did not benefit from a fair share of this growth. Furthermore, the policies supporting growth led to the loss of job security and social guarantees for workers, as well as to a decline in real wages and a further increase in unemployment and poverty.

Figure 1: Annual average real wage evolution in selected European countries, 2003-2008

Source: Turkish Statistical Institute

Figure 2: GDP growth in Turkey, 1982-2008

Source: Turkish Statistical Institute

The global crisis in September 2008 took place during the period when capital increased its accumulation through more intensive worker exploitation. In Turkey, the government responded to the global crisis in line with the policies determined at the global level. The policies implemented as a requirement of the market economy have been publicly raised by the rhetoric of “solving the unemployment problem”.

The unions stepped into the crisis with considerable weakness due to the oppressive legislation and their own structural problems. The different ideologies held by the unions were also reflected in the policies they adopted in the face of the crisis. DİSK and KESK, which proclaim to be relatively closer to the left and oppose the AKP government, were perhaps the most actively engaged against the crisis.

“Birleşik Metal-İş” (a union representing workers employed in the metal industries), which is affiliated with DISK, published a declaration on 3 November 2008, which emphasised that the crisis actually arose out of the capitalist system and that this was therefore a crisis of capital. The declaration also advocated that workers must not be forced to pay for this crisis, and further called for reducing working hours in order to protect employment, banning dismissals and flexible employment, and cancelling the interest on credit card debts as well as indirect taxes. The most important difference of this declaration is that it called on all pro-labour organisations as well unorganised sectors of society to collaborate in order to achieve these demands.

A report issued by Türk İş, the largest nationwide confederation of unions, highlights the importance of protection of employment and defends the idea that the state must support capital through incentives on condition that the latter would protect employment as a way out of the crisis.

Mass layoffs of unionised workers led labour unions to focus on the protection of employment. However, with the exception of a number of combative unions under the KESK and DISK confederations which managed to organise powerful struggles, it is generally understood from the initial reactions by the confederations that the crisis is perceived as a “natural” phenomenon which affected the whole world, and not as a structural consequence of the capitalist system. The government has responded to the crisis through incentives for capital in the form of taxes, loans and investment promotion, giving them the following major titles: tax exemptions and exclusions, tax amnesty for undeclared wealth, debt rescheduling and instalments. Moreover, temporary reduction was implemented via indirect taxes on consumption for a limited period in order to revive the domestic market. With this in mind, the demands of capitalists and unions overlapped on many issues, such as support for companies, partial absorption of labour costs by the state, and demands for changes in tax policies.

A one-day strike, which was staged by KESK and Türk Kamu Sen on 25 November 2009, was the most effective protest carried out by the unions against the effects of the crisis on workers. A short time after this very well-attended action, workers who used to be employed by TEKEL - the recently privatised public enterprise producing cigarettes, tobacco and alcohol - took action in Ankara to protest against the privatisation of TEKEL and their re-employment in other factories as per Article 4/C of Civil Service Law No 657. This law was introduced by the AKP government to veto the workers’ existing contracts and force them to accept part-time conditions with significant loss of pay and social rights following the closure of their workplace. The TEKEL action, which turned into one of the most important in the history of the Turkish working class, was carried out despite government disapproval and threats. The action lasted 78 days. The TEKEL workers' resistance was supported by very different sections of the working class. In addition, many unions in Turkey and across Europe made material and moral contributions to the protesting workers. Although six labour confederations operating in Turkey declared their support for the resistance, it could not be turned into a common cause. However, although the demands of the workers were not met, the wages and employment benefits of about 20000 workers under 4/C status saw nominal improvements. In addition, certain regulations regarding severance pay and private employment offices that had been on the agenda for a long time and that were to be introduced by the government could not be raised due to the influence of the working class struggles, which gained momentum following the TEKEL resistance. Unfortunately, despite the stability of workers and strong public support to sustain the resistance to abolish 4/C status completely, Tek Gıda İş Union disclosed in a statement made on August 9 2010 that all the actions scheduled to raise the demands of the TEKEL workers had been cancelled and they called on the workers to agree to the 4/C position they had been resisting for 78 days.

One could argue that, beyond the oppressive and restrictive setting in which unions have been forced to operate since the 1980 coup, the “compromising” approach of international union organisations has also influenced the union movement in Turkey. The World Bank, OECD and EU all supported this “compromising” approach of the international unions, which has finally been institutionalized in the industrial relations systems of central and peripheral countries through a number of programmes developed under the title “social dialogue”. Due to their compromising attitudes for many years, union structures throughout the world are neither so combative to challenge capital nor willing to develop political agendas and alternative approaches in the face of crisis. However, as in many other countries, labour struggles have continued despite the unions and, as a result, public protests for which the unions had to claim responsibility have been carried out.

Regardless of whether capitalism has overcome its crisis, the crisis for workers continues to deepen. Whether the workers will finally be able to overcome their crisis by getting out of the vicious cycle of unemployment and poverty depends on the power they are able to generate through class struggle. The decisive issue will be whether the unions keep seeking compromise, or head for class struggle.

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Yasemin Özgün is Assistant Professor in political science at Anadolu University - Eskisehir, where she researches politics, the media and poltical communication. She has published widely on Turkish politics, labour studies, education and feminist politics.
Özgür Müftüoğlu is Assistant Professor in the Department of Labour Economics and Industrial Relations at Istanbul’s Marmara University. He has published widely on labour studies and political economy and has produced and presented a weekly TV programme ‘Emek- Forum’ (Labour-Forum) for the last 2 years. He is also a columnist for the daily newspaper Evrensel.

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Change or lose Europe

Friederike Spiecker

Frank Hoffer

When asked what he thought of Western civilisation, Mahatma Gandhi replied: “I think it would be a good idea.”

After an agonising depression and another devastating war, Europe finally followed Gandhi’s advice and moved from centuries of antagonism, war and “beggar thy neighbour” policies to a world of cooperation and integration. Reintegrating post-nazi Germany, bringing the former Portuguese, Spanish and Greek dictatorships into a democratic Europe and opening up to Eastern Europe are milestones in this complex integration process based on political will, cooperation and regulated markets. But it was only after the ideological shift in the 1980s and 90s that mainstream thinking changed and concluded that the best form of cooperation was fierce competition and radical market liberalisation. However, deregulation, the common market and single currency did not create the promised land of prosperity, but resulted in declining wage shares and greater inequality.

The benefit of a single currency in a large market across several countries lies in a common employment and growth-oriented monetary policy for all member countries, rather than a monetary policy narrowly focussing on the needs and priorities of the anchor currency as in the former European exchange rate mechanism. However, in a world dominated by deeply rooted neoclassical and monetarist beliefs, this benefit had no chance of materialising.

Relinquishing internal exchange rate flexibility deprives governments of an adjustment mechanism to respond to unequal economic performance. This increases the need for 1) coordinated wage, fiscal and especially tax policies to avoid a race to the bottom which would inevitably have a negative impact on overall growth; and 2) joint infrastructure and industrial policies to improve productivity and reduce regional development differences.

With the euro, balanced trade requires that wages in all member states grow in line with national productivity plus targeted inflation rate of the ECB. Otherwise countries with relative higher growth in unit labour costs will systematically lose market share and build up trade deficits. The case for a coordinated wage policy to avoid imbalances, beggar thy neighbour policies and a waste of potential growth is overwhelming; it is alarming that it has been ignored for so long. Those who let unit labour costs rise too fast are equally responsible for the explosion of imbalances after the abolition of the exchange rate mechanism as those who gained market shares through wage restraint. This lack of policy coordination resulted in rapidly growing trade imbalances after 1998 (Table 1).

Table 1

Prior to the euro, Germany’s above-average productivity growth and export surpluses were frequently adjusted through currency appreciation. Trade imbalances stayed within 2% of GDP and – contrary to today – German workers benefited from German competitiveness as the ‘Deutschmark’ (DM) appreciation made imported goods and sunny holiday destinations abroad cheaper.

Under the new currency regime, however, it was almost exclusively businesses that benefited. This mercantilist strategy was costly to Germans. Wage dumping translated to export growth, depressed domestic demand, and the lowest growth rate in the Eurozone. Given these German wage developments, even France, who achieved wage growth in line with productivity (Table 2), suffers from a growing trade deficit with Germany (Table 1).

Table 2

Regardless of government actions, rebalancing is bound to occur. The question is how and with what consequences for growth, distribution and ultimately political stability. Realignment can be achieved through either wage cuts in deficit countries, a rise in wages in surplus countries, or constant transfers from the former to the latter. However, it makes a world of difference whether the realignment occurs by “deflationary” means, forcing everybody to follow the German example, or within an overall growth regime that avoids the pitfalls of wage deflation.

Three scenarios are possible:

1. Deflationary cost cutting.
This is what European institutions and surplus countries currently impose on deficit countries. The result will be a deflationary depression in deficit countries with high unemployment, negative growth, and public debts accelerating as share of GDP. Internal devaluation will require a massacre of public services and nominal wage cuts of 20 – 30% for countries like Spain, Greece, Italy or Ireland. Their economies will shrink and so will the inner-European export market for surplus countries. Ultimately, after having sold and privatised what is left of public assets in a depressed market, countries will default. Ironically, this “no bailout policy” will cause involuntary transfers, as creditors will have to write off part of the credits. These banks – mainly from surplus Germany – will again claim their systemic relevance and German taxpayers will be asked to save them. This “solution” might be as costly for taxpayers as direct transfers to Greece or Ireland. The outcome of such an austerity policy is unfortunately a negative sum game within Europe, and its only rationale is the unlikely prospect that the shrinking internal market will be overcompensated by export surpluses outside the Eurozone.
If popular resistance does not force European governments and the EU to change policies, it is difficult to see how the Euro and ultimately European integration can hold.

2. Constant public transfers.
This is the reality within the German currency union since 1990. The constant “trade deficit” between West and East Germany is closed through a stream of public transfers. Such a transfer system on a European scale currently looks politically impossible, even if some form of European unemployment insurance would be desirable further in the integration process.

3. Wage-led growth.
A wage-led growth oriented policy coordinated by Eurozone member states is the only realistic way to avoid repercussions deriving from deflation. Such a policy must be based on 1) rapid extension of domestic demand in surplus countries through wage, income and fiscal policies; 2) giving all Eurozone governments access to low interest euro bonds; and 3) productivity-enhancing investment in pan-European infrastructure. Only if surplus countries drive economic growth and increase aggregate demand can deficit countries regain market shares and avoid a long and painful depression. However, even under the favourable conditions of economic growth, rebalancing will only be possible if deficit countries accept below average unit labour cost growth over a longer period of time, and if surplus countries change their aggressive export strategy and strengthen internal wage growth so that unit labour costs rise above average. During this period, nominal wage growth in deficit countries must stay positive. Wage policy must act as a barrier against downward pressures on wages that risk pushing countries into deflation, as seen in Japan. Realignment within an overall regime of nominal wage growth would allow the reduction and eventual reversal of permanent German trade surpluses.

The necessary policy changes cannot be understood within a narrow enterprise logic, viewing wages merely as costs and not as income and demand (an irreplaceable condition for sustainable, productivity-enhancing and equitable growth). Democratic governments need to focus on the common good of full employment and provide a framework to achieve collective bargaining wage settlements that ensure wages growing in line with productivity. This should include:

• a legal minimum wage at 50% of the average wage;


• government support for co-ordinated or centralised collective bargaining and universal application through legal extension mechanisms;


• labour market regulations minimising all forms of precarious atypical employment and limiting the excessive power of employers in the labour market;


• that governments, as the largest employer, investor and procurer ensure public sector wages grow in line with the defined wage norm and provide contracts only to companies that adhere to collective bargaining agreements;


• productivity enhancing public investment;


• a progressive European tax on trade surpluses overshooting 2% of GDP in two consecutive years to give surplus countries the choice either to stimulate their own economy or to provide transfers to neighbouring countries that pursued a balanced functional wage policy, but lost market shares because of the mercantilist strategies of surplus countries;


• a tax on enterprises that try to gain a competitive advantage through wage depression instead of innovation. Unlike the Polish government who introduced the Popiwek tax against wage inflation in the 1990s, enterprises would have to pay a 50% tax on the gap between the actual increase of the hourly wage and a wage increase fully reflecting productivity growth and targeted inflation rates to avoid wage deflation. This would encourage employers to share productivity gains with their employees and would ensure wage growth in line with macroeconomic requirements for sustainable growth.

To support such an inclusive rebalancing strategy, the European Central Bank should 1) raise its inflation target to 3-4% to provide more space to adjust without making deflationary nominal wage cuts; and 2) aim at co-ordinated exchange rate policies between the major trading blocks to ensure that internal balancing does not result in external imbalances.

For Europe, adopting a coordinated wage policy oriented towards lower inequality, balanced trade and economic growth is not only necessary and possible: it would in fact be a good idea.

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Frank Hoffer is senior researcher at the Bureau for Workers' Activities of the ILO.

Friederike Spiecker is a macroeconomist and independent consultant. She has published widely together with Heiner Flassbeck, chief economist at UNCTAD, on German, European and international economic policy.

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