Some Thoughts on Inequality and Competitiveness

The increase of inequality since the 1990s further accelerated with the crisis of 2008. If this has finally triggered a consensus view that we should fight inequality, few see the contradiction between the contrast to combat inequality (the uneven distribution of income) and the emphasis, especially in Europe, on structural reforms, specially on the labour market. This article looks into this contradiction by noting that just looking at stylized facts one can show that increasing polarization of income does not lead to higher investment, nor to more competitiveness. In fact, the analysis of the German model shows that there is much more than price competitiveness at stake. Contrasting inequality should therefore be given priority with respect to wage moderation policies or even wage deflation.