The fundamental role of wage austerity over the past 20 years in OECD countries

In most OECD countries (with the noteworthy exception s of France and Italy), labour market flexibilisation and liberalisation since the 1990s ha ve skewed income distribution to the detriment of wage earners and driven up inequalit y and poverty. But what can be called “wage austerity” subsequently played a major role in the evolution of OECD economies: Low wage growth led to low inflation; The low inflation has allowed interest rates to remain very low relative to growth; This taxation of savers has made it possible to conduct highly expansionary fiscal policies, leading to a sharp rise in public debt ratios (except in a few countries that have not yielded to this temptation, such as Germany). Taxing savers seems a less costly way of ensuring fiscal solvency than other forms of fiscal austerity . The choice of wage austerity has therefore shaped the economic equilibrium in OECD countries over the past 20 years , and has now led to a very important debate on the role of fiscal policy. It has also led to several serious risks: The risk of a social and political crisis because of abnormally weak wages and rising inequality. This policy results in many losers: wage earners and savers; The risk of the potentially destabilising effects of a long period of abnormally low interest rates: asset price bubbles, appearance of zombie firms, weakening of banks; The risk that ending wage austerity will drive up inflation and interest rates, potentially triggering a debt crisis after a long period of debt accumulation at very low interest rates.