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Wage-setting as macroeconomic policy

September 10, 2021

Wage-setting as macroeconomic policy: More than just a lowflation and competitiveness cure
In early 2020, the European Commission launched a comprehensive Economic Governance Review and consultation, with a view to designing a new strategy in the second half of the year. The Covid-19 pandemic pushed this process into the background, but decisions will soon need to be taken. Rather than focusing on fiscal rules, which tend to dominate the reform debate, we propose a greater orientation towards relative price and nominal wage developments, and thus to a balanced macroeconomic development in each member state. Macroeconomic imbalances, not fiscal profligacy, are the mortal danger for a monetary union.
The inability of central banks to hit their inflation target has

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