{"id":144073,"date":"2022-09-22T14:11:50","date_gmt":"2022-09-22T12:11:50","guid":{"rendered":"https:\/\/www.erasmusmagazine.nl\/en\/?p=144073"},"modified":"2025-12-19T11:26:25","modified_gmt":"2025-12-19T10:26:25","slug":"wages-should-be-going-up-by-a-lot-since-they-havent-kept-pace-with-profits","status":"publish","type":"post","link":"https:\/\/www.erasmusmagazine.nl\/en\/2022\/09\/22\/wages-should-be-going-up-by-a-lot-since-they-havent-kept-pace-with-profits\/","title":{"rendered":"‘Wages should be going up by a lot, since they haven’t kept pace with profits’"},"content":{"rendered":"

Interest rates will be raised in a bid to ward off the spectre of inflation, and the government announced a package of some 17 billion euros in spending power compensation for the coming year this Budget Day. As far as development economist Irene van Staveren is concerned, the measures are misguided or far too late.<\/p>\n

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Irene van Staveren (1963) is professor of Pluralistic Development Economics at Erasmus University’s Institute of Social Studies (ISS) in The Hague. Her areas of expertise cover feminist, social, institutional and post-Keynesian economics.<\/p>\n\n\t<\/div>\n

Why do you feel the measures are misguided?<\/strong><\/p>\n

\u201cThe problem is that most economists attribute inflation to a surplus of money. That\u2019s usually due to the fact that money has become too cheap. However, that\u2019s not what\u2019s happening now. As Keynes explained, the real cause can be traced back to cost increases. I think that\u2019s important to highlight. It\u2019s a cause of inflation that has actually largely disappeared from the economics textbooks. That\u2019s why raising interest rates actually won\u2019t be all that effective in this case. It makes it more expensive to borrow money, but it doesn\u2019t do anything to address higher cost prices.\u201d<\/p>\n

Isn\u2019t the war in Ukraine the real cause here?<\/strong><\/p>\n

\u201cIt\u2019s definitely an important cause, but it\u2019s only a temporary one. There\u2019s also a more permanent cause, in the form of our ageing population. That\u2019s causing labour market shortages and won\u2019t be fixed overnight. It\u2019s just something we\u2019ll have to learn to live with. The pandemic heightened that effect. People started leaving the industries that are currently facing severe shortages \u2013 such as the hospitality industry \u2013 during the pandemic.\u201d<\/p>\n

So if interest rate hikes are not the solution, what is?<\/strong><\/p>\n

\u00a0<\/strong>\u2018You\u2019ll need to respond to price increases. That could mean introducing price caps in the energy market or more measures to rein in house prices. We can achieve that by phasing out the mortgage interest tax allowance. In Germany, for example, you can borrow up to 80 per cent of the property value and have to contribute the rest of the money yourself. That also helps to reduce prices.\u201d<\/p>\n

Having to put in your own money obviously does not make things any easier for first-time home buyers.\u00a0<\/strong><\/p>\n

\u201cThat\u2019s why you shouldn\u2019t introduce the measure all at once. We\u2019ve already reduced the maximum lending rate in the Netherlands from 110 to 100 per cent in recent years. I think we should keep moving towards the German standard. There are also other measures that could help, like anti-speculation clauses under which you have to live in the houses you buy rather than using them as investments. In other words, we need to introduce regulations for the housing and rental markets as well as for the energy market.\u201d<\/p>\n

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Shouldn\u2019t we just raise wages?<\/strong><\/p>\n

\u201cAs we\u2019re constantly reminded, that carries the risk of a wage-price spiral, which will only drive inflation. The recent collective labour agreement of the Dutch Railways (NS) at first glance seems to be a good example of that spiral. A 9.25 per cent pay rise. Still, I\u2019m not that worried. People tend to argue against wage increases using the inflation-correction argument, but they actually represent an overdue correction. Wages have been lagging behind profits for many years.<\/p>\n

\u201cThe NS CLA was actually quite clever in that employees got two 1000 Euro payments and minimum wages went up. Those two elements ensured that the lowest-paid NS staff enjoyed a comparatively greater advantage. After all, if you just negotiate a percentage-based pay rise, senior managers are likely to put the money in savings or invest it. That doesn\u2019t stimulate the economy. At best, those managers will go on an extra skiing trip. The poorest households, on the other hand, need the money immediately. That means you can be sure it will be spent quickly, which helps the local supermarket, tailor or restaurant. One-off payments also don\u2019t lead to any structural wage increases, so you avoid a spiral.\u201d<\/p>\n

Households are mainly struggling with sky-high energy bills. So what should the government do?<\/strong><\/p>\n

\u201cThere are currently plans to decouple electricity and gas prices. They\u2019re currently linked, which doesn\u2019t make much sense: green suppliers don\u2019t use gas to generate electricity. They use wind and solar power, which is much cheaper. If we unlink the two, green energy will automatically become cheaper.\u201d<\/p>\n

The original idea was that energy suppliers would make extra profits off green energy, incentivising them to invest more in green technology. So wouldn\u2019t decoupling the two remove that incentive?<\/strong><\/p>\n

\u201cIt would, but all the benefits are currently going to the suppliers. Meanwhile, households are struggling to pay high energy prices, so let\u2019s make sure they enjoy the benefits. You\u2019ll still get suppliers to change their behaviour, but the incentive will come from the demand side. Consumers will be able to choose green energy suppliers who can offer much cheaper electricity.\u00a0I would also support a price cap on gas and electricity, but the government should act sooner rather than later.\u201d<\/p>\n

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If you cap the energy price, doesn\u2019t that remove households\u2019 incentive to be fuel efficient?<\/strong><\/p>\n

\u201cIt\u2019s true those kinds of measures won\u2019t help reduce gas consumption, especially if gas becomes much cheaper. Still, I don\u2019t see that happening any time soon. The price cap will be set at the level of January 2022, which was already quite high. It\u2019s obviously supposed to be a temporary measure. The EU is asking people to consume 10% less energy, and they\u2019re definitely going to do that. This spring, it became clear that we had already conserved an average of 15 to 20 per cent. Most of that was attributable to businesses, but households also cut their energy consumption.\u201d<\/p>\n

Meanwhile, the government is also trying to shore up spending power. We can expect at least 14 billion in aid next year. How do you feel about the fact that most of those measures will be introduced next year?<\/strong><\/p>\n

\u2018It\u2019s pretty dire that the government won\u2019t be taking measures to compensate for lost spending power until next year.\u2019 Apparently, our public services \u2013 such as the Tax and Customs Administration \u2013 have been hollowed out to the point where they can\u2019t get it done this year. That\u2019s definitely not good policy. People are already in trouble now, they\u2019re getting into debt. There\u2019s no way they\u2019ll have recovered by next year. We can still take measures this year if we take a pragmatic approach. For example, you could achieve a lot through the healthcare allowance, which people with low incomes already receive now. Why not just multiply that amount.\u201d<\/p>\n

Are you confident the government will strike the right balance between supporting large companies and low-income households?<\/strong><\/p>\n

\u201cI\u2019m mainly worried about the big difference between the support for large companies and smaller businesses. For example, a large fertiliser plant is currently getting subsidies to stay afloat, even though we have a fertiliser surplus. That seems a bit strange to me. Smaller businesses play an important role in society. They haven\u2019t really made themselves heard so far, but they also need energy. And what happens if contractors have to stop construction because they can\u2019t afford to pay their energy bills? I thought the government was eager to build lots of houses.\u201d<\/p>\n\n\t

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