A slow or rapid end to wage austerity? An important question for financial stability

There has been a high level of wage austerity in OECD countries on average over the past 20 years: wage earners’ bargaining power has weakened, income distribution has been skewed against them, and inequalities have risen as a result. This trend will be rejected: in democracies, it is inconceivable that wage earners will tolerate a never-ending decline in their share of national income. So we can imagine two scenarios : One scenario where income distribution slowly corrects, for example under the effect of economic policies that lead a growing share of productivity gains to be distributed to wage earners. There would then be a slow acceleration in wages, a slow rise in inflation and in interest rates, and a crisis-free exit from very low interest rate policies ; Another scenario of a rapid correction in income distribution, due to the arrival to power of governments that change labour market rules, for example by sharply hiking the minimum wage. This would give rise to a rapid rise in inflation and in interest rates and to a risk of a financial crisis (overindebtedness, capital losses on bond portfolios) .