A report to be presented ahead of the G20 summit suggests that wage rises and infrastructure spending could deliver better than two per cent growth.
Increasing wages and spending more money on infrastructure could drive global growth higher than the target set for G20 nations, a new study shows.
The Group of 20 leaders, who will meet for the annual summit in Brisbane in November, have been asked to put forward plans for their countries to deliver a two per cent hike in growth beyond current projections.
But economic modelling to be presented to G20 labour ministers at a meeting in Melbourne on Wednesday shows almost six per cent growth could be achieved with the right settings.
The University of Greenwich modelling suggests a one percentage point rise in wages as a share of GDP could lead to a 0.36 per cent increase in global GDP.
A coordinated increase in wage share of between one and five per cent across G20 nations could achieve the two per cent target being sought by leaders.
Coupled with a boost in public infrastructure, it could deliver between 3.9 per cent and 5.8 per cent growth depending on the spending mix.
“A policy mix of raising the wage share together with increased public investment in social and physical infrastructure would give a significant stimulus to growth and employment over five years,” the report said.
The report said when profit share increased, the fall in domestic consumption outweighed the rise in private investment.
Even in profit-led countries such as Australia, a global fall in the wage share leads to a global aggregate drop in demand and potentially a contraction in those countries.
The labour ministers will discuss how to tackle global unemployment and their work will feed into the leaders’ summit in November.
International Trade Union Confederation (ITUC) general secretary Sharan Burrow said a “business as usual” approach would deepen inequality in G20 countries and a worsening slump in wages would slash demand unless labour ministers take action.
“The G20 finance ministers have set a target of two per cent … the question is how to get there,” Ms Burrow said.
“This new research shows 33 million jobs could be created by coordinating wage increases and investment in infrastructure and unions will be urging governments globally to act on it.”
A survey by the ITUC showed 57 per cent of respondents believed the Australian government was doing a bad job at tackling unemployment, which is at a 12-year high of 6.4 per cent.
Across G20 countries 68 per cent of people marked down their governments as bad at tackling the jobless rate.