IMF and inequality: long on rhetoric, short on action


No academic work has done more to raise the issue of inequality among professional economists than Thomas Pikkety’s Capital in the Twenty-First Century.

But the International Monetary Fund (IMF) has also received attention for its recent research papers which show that income inequality harms economic growth and stability.

Unfortunately, the welcome contributions of IMF researchers to the growing body of economic literature on the deleterious effects of inequality are undercut by the same institution’s actions in a number of countries to deregulate labour markets.

The measures have included reducing minimum wages, cutting benefits to the unemployed and severely weakening a primary instrument for achieving equitable income distribution: collective bargaining.

Throughout southern and eastern Europe, the IMF has formulated country-level policy advice or lending conditions that have pushed countries to deregulate labour markets and dismantle or weaken collective bargaining institutions on the pretext that it will make their economies more “competitive” and increase growth.

While economic evidence, including that produced by the IMF itself, shows that the growth-enhancing impact of such deregulatory measures are usually negative in the short run and insignificant in the longer run, their effects to increase income inequality are undeniable.

The ITUC has produced a brief update on deregulatory labour market measures promoted by the IMF, and in some cases imposed through loan conditionality, in six European countries.

Actions taken since 2013 by the IMF and its “Troika” partners to postpone deficit-reduction targets, thus permitting most European countries to return to economic growth in 2014, have not been imitated in the field of labour regulations.

On the contrary, the IMF, with or without the Troika, has aggressively continued to push labour market deregulation.

The impacts have been dramatic, with collective bargaining coverage falling by as much 85 per cent over a few years.

The long-term effects of the deregulatory measures in terms of worsening income inequality and social cohesion will be profound if the trend is not reversed.


To read the ITUC’s report, Labour Market Deregulation Measures in IMF Loan Conditionality and Policy Advice for European Countries, visit: