SUMMARY OF KEYS FINDINGS
Summary of key findings The Growth Report presents a comprehensive picture of the development path of the Hungarian economy over a longer-term horizon and the most important factors determining this path. The Magyar Nemzeti Bank analyses trends in economic growth in several regular publications, such as the Inflation Report, the Report on the Balance of Payments and the Financial Stability Report. These publications typical�ly focus on the business cycle, specifically analysing changes in variables which determine the stance of monetary policy. The objective of the annual Growth Report is to directly present the longer-term trajectory of Hungarian economic variables, sometimes over an entire business cycle, and the related critical factors, using both standard and alternative indicators. In addition to a detailed examination of the available domestic data, we supplement our analyses with international and historical comparisons. Section One of this Growth Report examines the changes in the macro-level income ratios observed over the past decades. The ratio of labour incomes and the related employer burdens measured as a proportion of GDP, i.e. the wage share, show a substantial, widespread decrease in a number of countries globally, as well as in most industries. Classical macroeconomic theory was hardly able to explain the process and also failed to explore the consequences of the falling wage share. At present, there is no consensus among economists in respect of the reasons for the declining trend. In his bestseller, Piketty (2013) comes to the conclusion that it is a feature of capitalism that the wage share moves on a declining path, unless it is interrupted by some external effect (war or state intervention). Although leading economists welcomed his analysis, the calculations involve significant presumptions that are not supported by empirical findings. As a consequence, Piketty's distinct conclusions and extrapolations have failed to have a resounding success. There is also no consensus among economists in respect of the impact of technological progress on the wage share. Based on the IMF's calculations, technological progress and rising productivity reduced the wage share in countries where the initial exposure to automation was high. According to other analyses, it was actually the deceleration in productivity that caused the wage share to decrease. However, economists agree that globalisation in the broad sense of the word, i.e. the cross-border movement of final goods, services and factors of production, had a downward effect on the wage share in certain countries, particularly in the case of developing economies. The wage share of foreign-owned companies falls substantially short of that registered at domestic companies, and this is also the case in Hungary. Institutional factors, such as the decline in trade unions’ coverage and outsourcing were important factors that caused the wage share to decrease. The decrease in the wage share has a number of negative consequences for economic growth and the structure thereof, and for economic stability and social inequalities. The decrease in the wage share reduced consumption in all countries under review. In terms of aggregate demand, the impact of the simultaneous increase in the share of profit on investments was not sufficient to offset the fall in consumption. The lower wage share improved export competitiveness and the volume of exports, but this has not compensated for the drop in domestic demand: according to the calculations, in the EU15 as a whole a decline of one percent in the wage share caused GDP to decrease by 0.3 percent. Several international institutions found a connection between changes in the wage share and the rise in inequality. In their paper, Berg and Ostry (2011), concluded that the countries that develop with smaller inequalities are generally able to achieve more stable growth path. In addition to income distribution, another question related to distribution is the heterogeneity of the economy's enterprises. These problems are concealed by the macroeconomic aggregates, but it is important to understand the underlying processes. GROWTH REPORT • 2017
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