Wage growth, rather than borrowing and financial booms, fuelled demand growth.

This disparity reflected some differences in productivity growth but even more so differences in wage growth.

Muted wage growth increases competitiveness, and underutilized labor and capital are redeployed.

Moreover, wage flexibility meant that substantially slower wage growth in the states that lost industries helped to attract and retain other industries.

This structure contrasts with the pre 1980 business cycle, which rested on wage growth tied to productivity growth and full employment.

The developing world is not doing much better. As the International Labor Organization s latest Global Wage Report shows, wage gains are lagging far behind productivity growth.

The resulting rise in output per worker, together with slow wage growth, reduced unit labor costs.

Slower growth and more modest real wage increases are likely, which will reverse households optimistic expectations.

Productivity growth at the historical rate of 0.7 in Germany, with wage growth of 4 , would be compatible with an inflation rate a little above 3 .

There are finally some signs that Germany will welcome more rapid domestic wage growth and somewhat higher inflation.

While productivity growth usually is measured in fractions of a percentage point, wage increases have been much larger.

The alternative is muted wage and income growth shared across the income spectrum, combined with productivity enhancing measures.

Unit labor costs reflect compensation levels and productivity gains in productivity can offset the effect of wage growth.

That way, wage income, not debt and asset price inflation, can again provide the engine of demand growth.

But there is little empirical evidence that public sector wages have a significant impact on private sector wage growth.

The American Employment Cost index and other indicators of developed country nominal wage growth show no acceleration of change.

The more trade unions defend existing wage structures, and the lower productivity growth is, the longer the slump will be.

Provinces with high levels of private insurance coverage, on the other hand, had lower employment rates and slower wage growth.

A decade of wage growth exceeding productivity gains led to real appreciation, loss of competitiveness, and large current account deficits.

But it would not require falling wages or significant price deflation annual wage growth of 1.7 and productivity growth of 2 would be compatible with inflation close to zero.

Furthermore, the decline in the working age cohort would squeeze labor supply, fueling wage growth and eroding the country s economic competitiveness.

Everything else includes government investments in three major areas on which growth and high wage jobs depend education, infrastructure, and research.

Most of these economies were suffering a loss of their export markets to low wage Asia. A decade of wage growth exceeding productivity gains led to real appreciation, loss of competitiveness, and large current account deficits.

China should count these wage increases as a measure of its success. Higher incomes are an entirely normal corollary of economic growth.

In the 1960 s, Keynesian policies delivered the illusion that everyone was benefiting, with high levels of employment and significant wage growth.

So the conclusion seems to be that wage growth will not threaten China s competitiveness in the next 10 or even 20 years.

Moreover, it is clear that northern European countries could help to close the competitiveness gap more rapidly by encouraging faster wage growth.

A rapid reduction in unit labor costs, via acceleration of structural reform and productivity growth relative to wage growth, is also unlikely, as that process took 15 years to restore competitiveness to Germany.

The country's macroeconomic policy would determine the criteria for wage growth, adjusted for inflation, to keep pace with growth in labour productivity in order to ensure that households genuinely benefited from economic progress.

In the 1960 s, Friedman showed that Keynesian demand management through government spending constantly increased the money supply, accelerating wage and price growth.

Unemployment remained high, at 7.8 at the end of 2012, and there has been almost no real wage growth over the last few years.

Average unemployment would then have to rise in order to keep workers demands for real wage increases at a level warranted by productivity growth.

For calculating the annual wage, the lowest general minimum wage was used.

The German solution to this conundrum keeping wage growth below that of productivity, thereby reducing unit labor costs took more than a decade to yield results.

Nor are the non poor faring particularly well, as wage growth has remained virtually flat for a very long time, even as corporate profits are booming.

In countries like the euro zone members, a loss of external competitiveness, caused by tight monetary policy and a strong currency, erosion of long term comparative advantage relative to emerging markets, and wage growth in excess of productivity growth, impose further constraints on the resumption of growth.

And, unlike tax incentives, wage subsidies target only employment of low wage workers.

For Germans, austerity, in the form of sustained wage and income restraint, was an important part of the growth oriented reforms that their country completed in 2006.

Despite the Bush era tax cuts, the 2001 2007 expansion was the worst of the post war period in terms of investment, employment, wage, and GDP growth.

China s consumers should also draw comfort from the likely move to market based deposit rates on their savings accounts, which will reinforce incremental growth in wage income.

They are an enormous boon to low income consumers, partly compensating for the tepid wage growth that many of them have suffered during the past two decades.

In a monetary union, discrepancies in wage growth relative to productivity gains that is, unit labor costs will result in a chronic accumulation of trade surpluses or deficits.

More focus on innovation and creativity will be accompanied by strong real wage growth, provision of greater rights for urban migrants, and expansion of health care and pensions.

nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp A rapid reduction in unit labor costs, via acceleration of structural reform and productivity growth relative to wage growth, is also unlikely, as that process took 15 years to restore competitiveness to Germany.

But improvements in productivity are easily overwhelmed by changes in wages. While productivity growth usually is measured in fractions of a percentage point, wage increases have been much larger.