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New L20 Modelling shows how the G20 Growth Targets can be met in an inclusive way

03/09/2014

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  • L20 Economic Modelling Resultspdf


Current G20 economic policies are failing to deliver for citizens. Austerity in many countries has depressed demand and is pushing the global economy onto the brink of deflation. Deepening inequality is producing economic as well as social damage. High unemployment and slow growth in many G20 countries is scarring a generation of young people. The choice for the G20 is more of the same or to shift policies.

As G20 members are setting targets for the Brisbane Leaders’ Summit in November, the L20 releases modelling data (prepared by Professor Ozlem Onaran of the University of Greenwich) that shows how it can be done by raising wages and public investment.

The results show that a “coordinated mix of polices in the G20 targeted to increase the share of wages in GDP by 1%-5% in the next 5 years and to raise public investment in social and physical infrastructure by 1% of GDP in each country can create up to 5.84% more growth in G20 countries.”

The L20 delegation heading to the Labour Ministers’ Meeting in Melbourne on September 10-11 will present the findings and urge for action to raise wages and reduce inequality.

For all the results of the L20 modelling download the full report on the right-hand side.

For the list of L20 Priorities to the Labour Ministers, click here.


If policies remain unchanged, a 1%-point simultaneous decline in the wage share in the world leads to a decline in the global GDP by 0.36%-points. However, demand in the world economy in aggregate is “wage led”, and jobs, minimum living wages and collective bargaining are a key part of the solution towards resilient and inclusive growth with increases in aggregate demand and living standards.

When a coordinated rise in wages can achieve the 2% growth target alone, leaders have to start investing in working families and take the opportunity to both create growth and decrease inequality. The propensity of wage-earners to spend is higher than that of profit-earners, so that the attacks on the distributional tools driving a just wage share has been economically counterproductive as well as socially unjust.

When wages are raised and investments in physical and social infrastructure are added to the policy mix, the positive spill-over effect on all G20 economies will be significant in raising growth. Our simulations confirm that a public investment stimulus of 1% of GDP in each country can lead to 1.94-3.88% higher growth in the G20 – compared to business as usual.