As an extraordinary recovery is underway, it won’t be long before business leaders face a perennial political economy question: With wages rising and workers’ claim on economic output growing, will firms’ profits come under pressure?
With tight economic conditions all but guaranteed, there are multiple scenarios of how output will be shared between workers and firms in the post-Covid expansion. The policymakers who have placed the big stimulus bet also will have to negotiate the path ahead.
We’ve identified a small number of plausible scenarios that sketch the interaction of wage growth, productivity growth, and policy management. While workers and policymakers can live with several of the scenarios, only one will be truly appealing for firms.