Have low wages permanently ‘scarred’ Europe’s economy?

Press quote (EurActiv)
29 March 2024

Sander Tordoir, a senior economist at the Centre for European Reform (CER), which hosted Wednesday’s event, told Euractiv that the ECB official’s concerns about the negative repercussions of persistently low wages are “exactly right”.

“Overly-long depressed demand and distortions between labour and capital may undermine capital investment and labour productivity, eroding European industry and growth,” he said.

“A pickup in wages to restore the labour share in the economy is key to avoid such a fate,” he added.

Tordoir, however, warned that the ECB’s failure to boost the eurozone economy by cutting interest rates from their current record-high levels in a timely manner could lead Europe to suffer “secular stagnation”, whereby chronically low growth is coupled with persistently below-target inflation.

“The ECB has a monetary policy interest in avoiding a return of a secular stagnation scenario in which inflation undershoots the [2%] target,” he said. “Avoiding scarring [the EU’s economy] is essential for that.”