International redistribution efforts boost the global economy and build resilience to economic shocks.

The policy cornerstone of a better recovery is income redistribution, which can be achieved by putting full employment and real wage growth at the centre of both macroeconomic and sectoral policies.

While this is already the case in some developed and developing economies, fiscal austerity continues to repress aggregate demand in many countries while the limits of monetary policy as an expansionary instrument have become evident after a decade of record credit creation.

The report argues that public work programmes have a fundamental role to play to secure household incomes while improving ailing infrastructures and public services. Cash transfers such as universal basic income are also important to sustain demand and reduce inequality, especially in developing countries.

But while full employment should be a target of public policy, it is not sufficient to reduce inequality in developed or developing countries. Countries can experience fast job creation, weak growth of demand and sluggish productivity.

To reverse these trends, governments should liberate industrial policy from its constraints in order to expand employment in high-productivity activities and make sure that investment in strategic sectors, including those instrumental to the green transition, takes place at necessary level.

Related, trade policy must be used to favour this effort, encouraging competition at the higher end of the productivity ladder rather than serve as a weapon aimed at labour’s bargaining power.

Public investment critical

Complementing industrial and trade policies, states should return to public investment, a major source of infrastructure spending in most countries. Such investment is particularly important in developing countries, for higher value-added activities to flourish.

It is precisely by limiting public investment that fiscal austerity has hampered structural transformation and sometimes led to its reversal.

In all countries the rules of the economy need to ensure that workers gain a fairer share of value added, the report says. This can be tackled head-on through labour market regulation that supports employees’ compensation.

Raising minimum wages, strengthening collective bargaining institutions and increasing employers’ social security contributions are obvious instruments.

While such measures will need to be tailored to national circumstances, increases in the labour income share can drive up GDP growth by supporting household spending and, indirectly, business investment.

But this will not happen unless better multilateral governance promotes and coordinates a global programme of redistribution and recovery.

Raise wages

Employment and real wages will have to rise significantly to correct the distributional imbalances that have built up under hyperglobalization, but building more inclusive economies post-COVID-19 will also require directly tackling various forms of discrimination, including by race and gender, that continue to segment societies and have a detrimental impact on future development prospects.

Combating workplace stereotypes and otherwise fostering and facilitating access to core sector employment, especially through social infrastructure investments that better enable women to combine paid work and their responsibilities for care, will need to be directly addressed.

Given the employment challenges post-COVID-19, part of gender inclusion for growth and development must be about transforming paid care work into decent work with the wage levels, benefits and security typically associated with industrial jobs in the core sector of the labour market.

More generally, proactive social policy must go beyond offering safety nets or floors designed to pick up (or stop from falling) those pushed behind.

Early data on the unequal health impact of the COVID-19 pandemic adds to existing evidence suggesting that only universal social protection, as opposed to targeted policies, is effective in reducing inequalities.

It can also accelerate and help manage structural transformation, helping to foster technological upgrading and productivity gains, underscoring the interdependence between an economy’s income distribution and its growth performance.

The policies necessary to generate a recovery and make sure it leads to sustainable growth and development are the components of what UNCTAD has been calling a “Global Green New Deal”.

As a policy programme to revive and rebalance the global economy, this strategy would also help establish economic security and generate overall resilience in the face of future shocks.