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.
The Ongoing Stimulus Bet
Fiscal stimulus was both enormous and necessary when the Covid crisis hit last year, and it successfully prevented the structural damage that weighs down recoveries. But even as the economy was on a better-than-expected rebound, the Biden administration and Congress opted for an additional stimulus package, in the hope of delivering a booming economy that will boost workers’ fortunes in the post-Covid economy. The downside to this stimulus bet is the risk of imbalances, such as inflation or asset bubbles, as the economy “overshoots.”
In the below exhibit, we summarize four ways in which this bet may play out — and who wins and loses. Let’s look at each of these scenarios, before asking which one is most likely and what that means for business leaders.
Read More at https://hbr.org/2021/06/who-will-win-and-lose-in-the-post-covid-economy