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.