Kahanec Urges Visegrad 4 to Cultivate Balanced Labor Relations in a Globalizing World to Improve the Productivity-Wage Gap

"In the Visegrad 4 [V4] countries [Czech Republic, Hungary, Poland, and Slovakia], the gap between wages and productivity worsened during the Great Recession starting in 2008," Associate Professor Martin Kahanec said. Kahanec made his remarks while addressing lawmakers, academics, and business, and labor representatives at the Czech Senate during a keynote speech at the conference "Do Wages Correspond to Economic Fundamentals in V4?" on December 4. "Rather than fighting changes in a globalized world, we need to learn to embrace them more effectively," he asserted.

According to Kahanec, there are several reasons why wages have not increased as much as labor productivity. One factor is the relative decline in the power of unions that represent segments of the labor force as compared to employers, who stand for ever more mobile and versatile capital. Another factor is the limited number of alternatives for potential employees due to increasingly difficult economic conditions (increased unemployment, tightened unemployment benefits, a slowing down of minimum wage growth, and increased risk aversion of entrepreneurs and innovators), particularly during the recent European financial crisis.

Kahanec offered concrete recommendations at the Czech Senate to combat the growing wage-productivity gap. "We can't and don't want to stop globalization or technological advancement," he highlighted, "so we must learn to live with it and share its benefits better." He called for more effective financial regulation to prevent fraud and excessive risk taking in an era of rising pressures on businesses to continuously improve return on capital, as well as building more efficient labor and welfare institutions and collective bargaining mechanisms. As he concluded, he urged also for "greater investment in public goods and services and socially-responsible, community-embedded businesses."