IMF Report: Less wage inequality necessary to boost growth

19 June 2015

The International Monetary Fund has published a report admitting that poor income distribution and stagnating wages was instrumental in the financial crisis. Yet it continues to pursue policy that actively promotes inequality; “The contradictions and irrationality of capitalism in a nutshell”, in the words of John Hendy QC.

The report acknowledges that weaker unions and less prevalent collective bargaining structures have lead to higher market inequality and “a higher top 10 percent income share for a smaller sample of advanced economies”. It is this poor income distribution that the IMF holds responsible for weak growth.

It states; “If the income share of the top 20% increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% is associated with higher GDP growth”.

The report dismisses “trickle down economics”, saying that if governments want to aid growth they should help the poorest 20% of citizens buy focusing on income distribution.

However the IMF’s economic analysis seems to have no effect on policy, as seen in the case of Greece. In its negotiations with Athens the IMF is actively pursuing the weakening of workers’ rights, despite poor employment regulations being cited in the report as a key factor in causing greater inequality. As Proffessor Keith Ewing says; “It’s a pity the IMF’s insight does not inform their policies”.

The full report is available to read here.