Wage pressure in Europe is likely to continue in the near future, International Monetary Fund (IMF) economists forecast in a paper published this Wednesday, highlighting differences between countries in wage growth.
In a paper published on the institution’s blog, IMF economists Chikako Baba, Ben Park, Ippei Shibata and Sebastian Weber believe Europe’s economic recovery is getting the boost it needs from rising wages and higher incomes.
However, they warn that “in countries where aging populations are shrinking the workforce, policymakers may soon face new challenges.”
“Short-term wage pressures could combine with longer-term labor market tensions to contribute to inflationary pressures,” the report said.
Economists believe that “wage pressures are unlikely to ease any time soon,” justifying this by saying that “long-term trends are already reducing labor supply (total hours worked).”
“Demographics and shorter working weeks mean employers face stiff competition to find skilled workers and are forced to pay more to retain them,” they explain.
Economists also note that “after two years of falling purchasing power, it is not surprising that European workers are pushing for higher wages.”
“Nominal wages rose by 4.5% in the eurozone and by more than 10% in other parts of Europe in the first half of this year. Higher wages help alleviate pressure on the cost of living and support economic growth,” they say.
The article also notes that “wage growth varies across countries,” pointing out that “in many advanced economies in Europe, wages have to rise further before they catch up with prices, meaning it is likely that pressures the direction of wage increases will remain.”
“In Central, Eastern and South-Eastern Europe, wage growth was faster and in line with prices. The region has seen strong wage growth in the past, but productivity growth was also strong then. Today he is weak. This means that new high wage increases will harm competitiveness,” he explains.
The economists also said that “central banks should be alert to risks of rising inflation and closely monitor wage agreements and their alignment with productivity trends” as “a sharp deviation could be a cause for concern.”
“The combination of monetary and fiscal policy should remain sufficiently restrictive to bring inflation back to target,” they said.
On the other hand, they argue that structural reforms aimed at increasing productivity are becoming critical.
Author: Lusa
Source: CM Jornal
I’m Tifany Hawkins, a professional journalist with years of experience in news reporting. I currently work for a prominent news website and write articles for 24NewsReporters as an author. My primary focus is on economy-related stories, though I am also experienced in several other areas of journalism.