This document summarizes a panel discussion on wages as an engine for growth in Europe. It makes three key points: 1. There have been similar productivity growth trends but diverging wage growth between manufacturing and services sectors in France and Germany. Wages have grown less in services sectors. 2. Some correlations were observed: higher productivity transfers to wages in services sectors are linked to less inequality and more inflation, while less inequality can lead to more inflation. 3. Two potential ways to resolve conflicts between these trends are presented: the "neo-liberal" approach of increasing competition and wage moderation in services sectors, and a more progressive approach including European minimum wages and transfers to boost productivity convergence.

1. ETUI-ETUC conference « Europe at a crossroads »
25 September 2014 – Panel 11 « Wage as an engine for growth »
1
Wage dynamics
and sectoral structures
in Europe
Odile Chagny and Michel Husson
(Ires)
1
Starting point
A France-German comparison
2

2. •1. Similar developments in productivity
160
150
140
130
120
110
100
1996
1998
France manuf.
2000
2002
Germany manuf.
2004
2006
France services
Germany services
2008
2010
2012
manuf=tradables services=non-tradables 3
•1. Similar 2. Diverging developments developments in productivity
of wages
120
115
110
105
100
95
France manuf. France
services
Germany
manuf.
Germany services
1996 1998 2000 2002 2004 2006 2008 2010 2012
manuf=tradables services=non-tradables 4

3. Wage sectoral structure
5
Wage sectoral structure : two polar situations
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4. 2
Some stylized correlations
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1. More productivity transfers to wages in services
 less inequality

5. 9
2. More productivity transfers to wages in services
 more inflation
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3. Less inequality  more inflation

6. 11
4. Less productive efficiency  more inflation
3
No convergence in productive efficiency
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7. 13
No convergence in productive efficiency
14
No convergence of productive efficiency

8. 15
A first “triangle of incompatibility”
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Looking for an optimal “wage rule”
A second “triangle of incompatibility”?

9. 17
The “neo-liberal way out” of the triangle
 A reform of the markets in the non-tradables sector, through its
modernization combining increased competition and wage
moderation, would exert a downward pressure on the internal
exchange rate of France and would contribute to reducing its current
account deficit.*
The recovery in the relative price of manufactured goods will make it
attractive again to invest in manufacturing. It will raise the industrial
capacity of production and trigger the re-industrialization. [It could
come] from increased competition in services, which would lower
the price of services.**
* Mouhamadou Sy, « Réduire le déficit des échanges extérieurs de la France. Le rôle du taux de
change interne », France Stratégie, septembre 2014.
** « La France et l’Italie se redresseront quand le prix relatif des produits manufacturés
remontera dans ces deux pays », Patrick Artus, Flash Natixis n°686, 11 septembre 2014.
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 Since 2009 wages have fallen more (or risen less)
in non-tradables than in tradables.
 More “wage moderation” leads to a wider gap.
The correlation is particularly pronounced for CEE countries.

10. 19
A more progressive way out of the triangle
1. A wage rule: an overall rise of wages according to the general
price index and the average productivity
 fair distribution of productivity gains
2. A European system of minimum wage
 reduction of discrepancies between sectors
3. A “price rule” to obtain an equalization of profit rates between
sectors: the relative sectoral prices should vary inversely with the
relative sectoral productivities
 constant profit share in all sectors
4. Transfers and investments (structural funds) in the productive
sector to ensure a faster productivity growth in the catching-up
countries
 convergence of inflation rates between countries
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Thank you for your attention