Macroeconomics: 4 questions for an uncertain future

For a pro­spect­ive study of our eco­nom­ic future, it is worth look­ing at mac­roe­co­nom­ics. This dis­cip­line high­lights four major ques­tions that will cer­tainly have a pro­found impact on our imme­di­ate future. Between the bar­gain­ing power of employ­ees vis-à-vis com­pan­ies, the bal­ance between sav­ings and invest­ment, the eco­nom­ic and social ‘dam­age’ of the energy trans­ition and, finally, the link between digit­isa­tion of the eco­nomy and pro­ductiv­ity gains, a warn­ing about a poten­tially uncer­tain future is in order.

Since the late 1990s, employ­ees’ bar­gain­ing power in the labour mar­ket has been stead­ily weakened by the dereg­u­la­tion of labour mar­kets and the decline in uni­on­isa­tion. This has res­ul­ted in a dis­tor­tion of income dis­tri­bu­tion to the det­ri­ment of employ­ees (for the OECD coun­tries as a whole, real wages have only increased by one third of pro­ductiv­ity over the last 20 years). As a res­ult, low wage growth and low infla­tion have allowed interest rates to fall.

If in the future infla­tion were to rise and wages increase, this would inev­it­ably lead to a sig­ni­fic­ant increase in interest rates and thus to an increase in debt which would be dif­fi­cult to sus­tain. Dur­ing the COVID crisis, com­pany profit mar­gins increased, which indic­ates that the employ­ees’ bar­gain­ing power is still lim­ited. Could this improve in the future? We must recog­nise that there is now sig­ni­fic­ant pres­sure to raise wages, espe­cially low wages, due to infla­tion, which could lead to an increase in employ­ees’ bar­gain­ing power, for example if there is an organ­ised increase in min­im­um wages.

The second import­ant issue is the evol­u­tion of the bal­ance between sav­ings and invest­ment. For the past 20 years, there has been a glob­al sav­ings sur­plus, and there­fore an over-demand for risk-free secur­it­ies (treas­ury bills, bonds). This is caused by a high sav­ings rate in Europe and a very high sav­ings rate in China, as in many oth­er Asi­an coun­tries. This situ­ation has con­trib­uted to the fall in both nom­in­al and real long-term interest rates, though this fall is also due to sus­tained expan­sion­ary mon­et­ary policies. If in future this situ­ation were to change there would be an increase in interest rates, with well-known neg­at­ive effects on the solvency of borrowers.

If in the future the sav­ings sur­plus were to dis­ap­pear, there would be a rise in equi­lib­ri­um interest rates, with proven neg­at­ive effects on the solvency of bor­row­ers. On the one hand, the energy trans­ition will require a sharp increase in the glob­al rate of invest­ment (for the pro­duc­tion of renew­able ener­gies, for the thermal renov­a­tion of build­ings), which is estim­ated at 4 points of glob­al GDP; on the oth­er hand, demo­graph­ic age­ing should in prin­ciple reduce the sav­ings rate (as retir­ees spend). We might there­fore expect this situ­ation to go away of its own accord. How­ever, there is still some doubt in this regard, as this has not been the case in Japan, for example, where the age­ing of the pop­u­la­tion has failed to elim­in­ate excess savings.

The third issue con­cerns the effects of the energy trans­ition and more par­tic­u­larly its costs. These are well known: the destruc­tion of pro­duct­ive cap­it­al in affected indus­tries (fossil fuels, thermal cars), the rise in energy prices (with costs arising from the inter­mit­tency of renew­able energy pro­duc­tion), the destruc­tion of jobs, and the trans­form­a­tion of neces­sary skills. If strong cor­rect­ive policies are not put in place (retrain­ing of employ­ees, assist­ance for affected indus­tri­al­ists, redis­tributive policies in favour of low-income house­holds that will suf­fer as a res­ult of the rise in energy prices), the loss of growth and the rise in unem­ploy­ment could be significant.

The ques­tion of the scale of the cost of the trans­ition is there­fore cent­ral to both the eco­nomy and the social situ­ation. Take the example of the auto­mot­ive industry (con­struc­tion, trade, repair): at least 120,000 jobs are expec­ted to be lost because of the energy trans­ition. If no strong action to retrain work­ers is put in place, the social prob­lem will be major, espe­cially in regions where the auto­mot­ive industry is primar­ily based.

The final ques­tion is the link between digit­al­isa­tion and pro­ductiv­ity gains (and there­fore poten­tial growth). The Cov­id crisis has triggered an accel­er­a­tion of the digit­al­isa­tion of the eco­nomy, with online trad­ing, remote work­ing and the auto­ma­tion of cer­tain sec­tors. Faster pro­ductiv­ity gains can be expec­ted as a res­ult of this digit­al­isa­tion of the eco­nomy, but it should be recog­nised that this is not guar­an­teed. With the pro­lif­er­a­tion of online dis­tri­bu­tion jobs and inter­net plat­forms, which have a low level of pro­ductiv­ity gains, over­all pro­ductiv­ity can only be dragged down. More than ever, mac­roe­co­nom­ic ana­lyses are dom­in­ated by the uncer­tainty linked to these four factors, to which the war in Ukraine can now be added.