In the OECD, future changes of government will eventually usher in other wage policies: What implications?

Over the past 20 years, OECD countries as a whole (France and Italy are the exceptions) have implemented policies that have moderated wages and skewed income distribution in favour of profits. These policies now meet increasing rejection among public opinion and, in democracies, the day will come when different governing majorities will use various instruments to conduct different wage polic ies that lead to much faster wage increases. This return to wage practices of the 1970s to 1990s will have considerable effects: Lower corporate profitability and share prices; Higher inflation, resulting in a “distributional conflict” in how income is distributed between companies and wage earners, and much higher interest rates; Reduced competitiveness compared with emerging countries, but this may be corrected by a depreciation of OECD exchange rates. Financial markets are not anticipating such a political and non- endogenous economic change. When it does take place , it will give rise to considerable losses in equity and bond portfolios.