Cutting wages does not stimulate economic growth, says UNCTADListen /
Reducing widening gaps in wealth and income will not only have social benefits but will also lead to higher economic growth, according to a report of the UN Conference on Trade and Development (UNCTAD).
The publication titled “Policies for inclusive and balanced growth" published on Wednesday, focuses especially on income inequality.
It says that fiscal austerity and wage compression are further weakening growth in developed countries without reducing deficits, creating jobs or renewing confidence in financial markets.
Heiner Flassbeck is the Director of UNCTAD's Division on Globalization and Development Strategies.
"We have the extremely paradox situation that we have very low wages but we have at the same time rising unemployment in the developed world mainly, also in some developing countries, that is putting a lot of pressure on the income of workers. And this is destroying the perspective for a growing economy because the world as a whole and developed countries as a whole are very close economies. So they cannot rely on exports and improving their competitiveness by cutting wages. That doesn't work."
The UNCTAD report says global growth fell from 4.1 per cent in 2010 to 2.7 per cent in 2011 and a further decline is expected by be below 2.5 per cent in 2012.