Responsible Governance and the Sustainability of Populist Public Policies. The Implications of Wage-Led Growth Strategy in Romania

In the present paper, we focus on the macroeconomic implications of the populist public policies and in particular on the effects of wage led growth strategy, which started to be applied in Romania from January 2017. Such a study is important as a practical example of applying this particular wage r...

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Bibliographic Details
Published inSustainability Vol. 12; no. 7; p. 2975
Main Authors Avram, Alexandru, Barna, Flavia Maria, Năchescu, Miruna Lucia, Avram, Costin Daniel, Avram, Roxana Loredana
Format Journal Article
LanguageEnglish
Published Basel MDPI AG 01.04.2020
Subjects
Economic activity
Economic growth
GDP
Gross Domestic Product
Impulse response
Income distribution
Inflation
Labor productivity
Labor unions
Macroeconomics
Productivity
Profit margins
Public policy
Regulation of financial institutions
Researchers
Response functions
Strategy
Sustainability
Wages & salaries
United States > US
Europe
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Summary:In the present paper, we focus on the macroeconomic implications of the populist public policies and in particular on the effects of wage led growth strategy, which started to be applied in Romania from January 2017. Such a study is important as a practical example of applying this particular wage related public policy and sets the premises for analyzing its sustainability and its macroeconomic implications and costs. For analyzing the implications of the wage-led growth strategy upon the sustainability of macroeconomic variables, we have used an unrestricted VAR (vector auto regressive) and compared the effect of the impulse response functions with the recent evolutions of the Romanian economy. Thus, we have observed the effect of the wage led growth strategy, by using the average wage, trade deficit, number of employees, inflation rate, labor productivity, and minimum wage as variables. Our study shows that the wage-led growth policy had a strong positive impact on the number of employees and on inflation, increasing it, but a negative impact on productivity. In addition, we have seen a strong positive impact on increasing the trade deficit. These particular evolutions have left the Romanian economy with almost no fiscal and monetary space of maneuver in the face of the exogenous shock produced by the pandemic.
ISSN:2071-1050
2071-1050
DOI:10.3390/su12072975