Here's why we need the wage union

Article of Péter Róna, American-Hungarian economist, published in Hungarian daily Magyar Nemzet


Orthodox economists and Hungary’s government with its apparently unorthodox economic policy seem to have found each other in terms of rejecting the wage union idea. They unanimously claim that the concept is infeasible and even harmful, too. Some say that a European wage union would render wages into Brussels’ decision-making competency, undermining the imperative of national sovereignty.  Others worry that the project would increase wages more than productivity, which would then cause a serious imbalance, especially a rampant inflation. The third group bases Hungary’s competitiveness on low wages in the first place, and they don’t see how this could be changed. The fourth one believes the concept is contrary to the interests of economically advanced EU member states and, consequently, infeasible.

The problem the wage union concept is intended to remedy is much larger than any supposed intrigue by George Soros or the threat posed by refugees/immigrants. It is nothing less than to fulfill the EU’s most fundamental promise, i.e., to create a community of destiny from Europe’s nations. If wage inequalities remain and stabilize at their current level, the European Union will simply lose its purpose. The true test of such purpose does not lie in GDP growth but in real wages. The peace of nations and social groups may turn into confrontation and, eventually, open conflict, and the signs of this process are already visible. So, contrary to the opinion held by many others, I believe the key problem is not poor GDP growth but the distribution of the income generated by it. The anomaly is manifested in an ever increasing gap between the poor and the rich, while the unfavourable development of real wages contribute to this poor GDP growth.

Let us take a look at the numbers. Apart from Slovenia, no post-Communist country has reached even half of the EU’s average wage level, and Slovenia’s 60% can hardly be called a success, either. The poorest of all, Bulgaria produces 18 per cent of the EU average and Estonia, the runner-up achiever after Slovenia, shows 48 per cent. The EU’s richest region, Westminster of the UK enjoys 600 times (yes, six hundred times) higher per capita income than the two poorest (one is in Romania, the other is in Bulgaria). Such gaps cannot simply be put down to the undoubtedly different levels of productivity. In the V4 countries for example, 100 EUR of payroll expenditure generates 212 EUR of income, contrary to Germany’s 132 EUR. The low efficiency of underskilled labour means a weak bargaining position in dealing with capital holders. No wonder that the interest-enforcing capacities of trade unions are more or less in line with the development level of the particular national economy, and the more advanced the national economy, the higher share labour gets from the national income.

In addition to productivity levels, the explanation of the lagging wages also lies in the shift of how the national income is shared between capital and labour. OECD member states have seen an 18 per cent productivity growth since 1999 while real wages have merely increased by 8 per cent. The difference went into fattening up capital incomes. In each peripheral country, the capital’s share of the GDP growth has increased while that of labour dropped constantly. In our region, Hungary has shown the poorest performance. The share of Hungarian real wages from the national income has sunken by 5.6 per cent since 2007, the Czech Republic has seen a decrease of 2.6 per cent, Poland’s figure has remained unchanged while Slovakia’s improved by 3.3 per cent. (These numbers indicate the Hungarian government’s outstandingly pro-capital attitude and refute the credibility of its economic policy aiming to promote the prestige of labour.) This shift undermines labourers’ sense of fairness and has an explicitly negative effect on economic growth as the lagging real wages entail that solvent demand fails to increase or even drops, thus curbing the chances for economic growth. If there’s no solvent demand, production cannot grow, either.

What the wage union aims for is stopping and then reversing these processes. What steps could help accomplishing this goal?

Almost in inverse proportionality with the dropping share of real wages, the income of the international financial sector and the “offshoring” of this income has been on the rise. The financial sector has forced the productive sector to pay an increasing share of its profit to the capital in the form of dividends, interests, royalties and other remunerations, and/or accumulate it in offshore companies. The triple victim of this process is the society: a smaller amount of the generated profit is available for wages; the state’s tax base is reduced; and there are more resources to promote consumption-driven indebtedness.

The wage union’s first step could be to impose higher taxes on financial transactions (especially transactions involving offshore companies) and the tax income so collected could be the basis for reducing the tax on wages. The second step may be to review the state’s subvention of capital. The national governments’ subsidization of capital should be subjected to a uniform EU regulation. Subventions should be determined based on labour training and re-training needs. The third step is to adopt a uniform labour code to stipulate the rights and responsibilities of workers. The fourth and most complex task is to provide the conditions necessary for increasing productivity.

Undoubtedly, this task is not easy but the way to improve this situation is quite obvious, too. The greatest obstacle is the current pro-capital economic policy, which is conducted in the name of a supposed national interest and national sovereignty but is, in fact, a burden on labour. As outlined above, the course of the wage union will, by its nature, mean an increased integration within the European Union. In this regard, those who choose to put their trust in national sovereignty, also stand for a world of lagging wages.


The author is an economist


Magyar Nemzet - September 22, 2017