May
06

High Wages Versus High Savings in a Globalized World

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Democracies will increasingly have to choose between raising wages and redistributing income or maintaining free trade and capital flows. Because they are likely to choose the former, the world may face a long-term reversal of globalization.

Investment-driven growth can broadly occur in the form of one of two models, each with a different way of treating wages and household income. One model, which I will call the high-wage model, incorporates and encourages high wages as the engine behind growth and productivity gains. I will call the other model the high-savings model. In this model, growth seems to be driven mainly by growth in savings, which provides the cheap capital that drives investment, which in turn drives productivity gains…

High Wages Versus High Savings in a Globalized World

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