Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre Rebuilding an economy for all in the aftermath of the Covid19 crisis Özlem Onaran University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre Outline • The context – Scale and stages of the crisis – Lessons for rebuilding • Policy simulation – Onaran, Oyvat, Fotopoulou, 2019, ESRC Rebuilding Macroeconomics Network – Tax wealth to fund public investment in social and physical infrastructure in order to solve inequalities, socio-economic and ecological sustainability • Policy alternatives to rebuild the economy in the aftermath of the Covid19 crisis University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre The context: Uncertainty • Public health – Reproduction rate – Rate and duration of immunity – Vaccine and/or treatment: when, for whom • Global, class, age inequalities – Duration and intensity and repeat of lock down – Second or more waves, how strong? – Mutation • Policy University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre The scale • Deepest economic depression in 300 years • Bank of England: 2020 UK GDP↓ 14%, 30%↓ in the first half • Global scale – EU GDP ↓ 7.4% (EC) • Sovereign debt crisis? – World GDP ↓ 3.5% (IMF) • UK: 25% of employees furloughed • UK Unemployment ↑ 10% – ↑ 20%? (Blanchflower) • Risk of deflation • Food price inflation • V-shaped crisis? Very unlikely • U-shaped, no full recovery in 2021 • L-shaped? University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre Vicious circle of overlapping multiple crises • Pandemic -> Supply crisis -> lockdown, uncertainty • -> Demand crisis • ->unemployment, poverty • ->household and firm debt crisis • ->financial crisis, credit crunch • ->increased concentration of capital and power • -> Sovereign debt crisis in Southern EU, Argentina…? • +Uncertainty -> further demand↓ Investment and consumption unlikely to bounce back; some firms/sectors may never recover • ->Social and political crisis • Massive monetary and fiscal stimulus required – Multiplier effect of fiscal stimulus likely to be lower than normal recessions • +Brexit uncertainty in the UK • Selective stimulus for some and austerity for others? • Lack of state capacity to plan and coordinate University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre Inequalities and the crisis mutually reinforce each other • Race • Class • Gender • Migrants • Age • Education • Manual vs office worker • Renters • Indebted • Regional University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre Lessons for rebuilding an economy for all in the aftermath of Covid19 • Years of public sector cuts and deregulated labour markets make the effects worse • Crises leave distributional scars – Tackle inequalities • Care and infrastructure deficit – invest in social and physical infrastructure – adequately value the care economy: Value what matters – Recognize as social infrastructure investment • Link short term emergency response to long term rebuilding – Flexible short working time arrangements – Job guarantee scheme • education grants, abolish tuition fees, paid on the job training – permanent redeployment: public sector jobs with decent wages • public investment in purple social and green physical infrastructure University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre Estimation and simulation results • Onaran, Oyvat, Fotopoulou, 2019, ESRC Rebuilding Macroeconomics • Post-Keynesian/Kaleckian feminist model • Fiscal policies – government spending in social vs physical infrastructure↑ • increasing employment for a given wage rate • increasing wage rate for a given employment • closing gender wage gap for a given employment – Increase tax rate on capital income and wealth, decrease tax on (low) labour income • gender, income and wealth inequalities: Labour market policies – Increase hourly real wage rate of men and women – close gender gaps with upward convergence • demand and supply side effects on – Output, productivity and employment (hours) University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre Purple green red new deal: the UK • public social and physical infrastructure investment/GDP↑ 1%-point • increase wages & close gender gap via upward convergence – 2% ↑ in female wages and 1% ↑ in male wages • progressive income and wealth taxation – tax rate on profit income ↑ 1%-point – tax rate on wages ↓ 1%-point – tax rate on wealth ↑ 1%-point • higher output in both short run and medium run – output ↑ 10.9% (in Medium Run) • Employment of both women & men ↑ in both short & medium run – E female ↑ 9.6%, E male ↑ 5.8% (in Medium Run) Improved public finance • – public debt/GDP ↓ 10.3%-point (in Medium Run) • Tax wealth , invest in a caring and sustainable society University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre What is the effect of an increase in public social infrastructure? • Short-run: (+) consumption: demand from employees in the social sector labour intensive, higher share of female employment (+) investment: rising demand (-) effects of public debt/GDP: likely to be small • medium run: labour productivity in the rest of the economy↑ investment and net exports ↑ • Employment: Depends on the effect on output and productivity (MR) o female share of employment↑ with greater share of social sector • Public debt/GDP: • Direct + effect, but - effects through rising output and productivity University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre What is the effect of an increase in female and male wage rate ? • General model: Dual role of wages →demand & cost • Wages & gender gap → Income & wealth distribution → demand → output • Short-run: (+) & ( - ) effects on aggregate demand (+) consumption: Marginal propensity to consume in social out of female wages>male w>profit Marginal propensity to consume in rest out of male wages>female w>profit (-) investment: profit share↓→I↓ but PW1/PW↓, PW1↓ & demand↑→I↑ (- ) net exports: the sensitivity of net exports to unit labor costs (price elasticity of exports & imports; labour intensity of exports) • medium run: labour productivity↑: moderates the effect of wages on profits • Total effect on demand is ambiguous in the short-run and medium-run -: profit-led economy (mainstream policy assumption) +: wage-led economy • Gender equality led if female wages ↑ + gender gap ↓ →output↑ • Equality-led = Wage-led + gender equality-led University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Greenwich Political Economy Research Centre Greenwich Political Economy Research Centre …Purple green red new deal: international policy coordination • Effects are strongest when coordinated across countries • fiscal policy effects are still very strong even when applied in a single country – EU wage and fiscal pol: • Obst, T., Onaran, Ö., Nikolaidi, M. 2020 “The effects of income distribution and fiscal policy on aggregate demand, investment and the budget balance: the case of Europe”, Cambridge Journal of Economics – G20 wage policies • Onaran, Ö. and Galanis, G. 2014 “Income distribution and aggregate demand: National and global effects” Environment and Planning A • estimations for South Korea – Oyvat, C., Onaran, O, 2020. The effects of public social infrastructure and gender equality on output and employment: the case of South Korea. CWE-GAM Working Paper: Program on Gender Analysis in Economics (PGAE) University of Greenwich University of Greenwich www.gre.ac.uk/gperc www.gre.ac.uk/gperc
Recommend
More recommend
