The global economy is suffering from severe shortage of demand. In developed economies that shortfall is explicit in high unemployment rates and large output gaps. In emerging market economies it is implicit in their reliance on export-led growth. In part this shortfall reflects the lingering disruptive effects of the financial crisis and Great Recession, but it also reflects globalization's undermining of the income generation process.
One mechanism that can help rebuild this process is a global minimum wage system. That does not mean imposing U.S. or European minimum wages in developing countries. It does mean establishing a global set of rules for setting country minimum wages.
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This article is drawn from Chapter 12, "The Challenge of Globalization," of Thomas Palley's forthcoming book: From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economic Ideas (Cambridge: Cambridge University Press, 2011).
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