4 ms·

Wage stickiness is definitely[1] a problem: when you have 20% unemployment (40%+ youth unemployment) wages simply have to drop. Otherwise wages only go up in go

by gizmo 15y ago

Wage stickiness is definitely[1] a problem: when you have 20% unemployment (40%+ youth unemployment) wages simply have to drop. Otherwise wages only go up in good times and stay stagnant in bad times. Austerity may be a given politically, but economically speaking it doesn't make much sense, and it's definitely not in the best interest of the EU (or the world) as a whole. [1] Not definitely, as some people pointed out below.

justincormack 15y ago
As the other posters here were saying, wages for the young are already very low. The problems are more structural, as technological change is changing what skills are needed, and some countries like Spain just had a huge property boom so everyone was trained for the construction business, which was a complete waste of resources. Existing businesses may never hire these people, so a lot of new businesses are needed, which takes time and capital, and a startup culture that much of southern europe does not have much of. Emigration is the current solution for many people instead.
yummyfajitas 15y ago
Again, economically speaking, the problem is austerity and wage stickiness put together. Austerity with nominal wage flexibility is fine - real wages will drop, employers will hire cheap employees, and there will be no unemployment or recession. Since austerity seems unavoidable, why aren't you and other people who buy into Keynesian theory pushing for wage flexibility?
- roc 15y ago
  Because the US shows that wage flexibility by itself isn't particularly effective? US wages are just about as sticky as Europe's, despite a far lower (and dropping) section of the market under collective bargaining. So why tinker with that ball of wax and hope for the best when you can just set a moderate inflation target and achieve the same end result? Everyone knows what moderate inflation does. It's well studied and understood. People who work or put their money to work have little to fear from it (as rates of return reflect and include expected inflation). Naturally, you don't want high inflation or runaway inflation, but it's clearly possible to hit and maintain something like a 4% inflation target.
  - yummyfajitas 15y ago
    Because the US shows that wage flexibility by itself isn't particularly effective? In that case [1], Keynesian economics is wrong and we must discard it's conclusions. Absent Keynesian economics, we have no reason to believe austerity will cause "criminal levels of capital waste" (to borrow gizmo's language). So therefore, there are no drawbacks and we should pursue austerity. Right? [1] I don't actually believe this, I'm going along with it for the sake of argument. My actual view: the US did not cut the wages of government workers during the recession, nor did it reduce real wages (on the employer side) by cutting benefits (e.g., SS contributions, subsidies for health insurance, etc). In fact, during the current recession, the US increased wage stickiness by raising the minimum wage.
    - roc 15y ago
      1. I don't think noting that flexibility doesn't overcome the stickiness of wages is enough to sink all of Keynesian economics. 2. There is no economic theory that has ever stood entirely on its original principles and made good predictions of how the economy works. Modifying and refining cases in response to real data is how all science progresses -- if I may be so bold as to suggest that economics could stand to borrow more habits from real science than the philosophy and morality that seems to have driven it for the last few decades. To your actual view: I'm not sure how much a small bump in the minimum wage increases wage stickiness over the economy. Very few workers actually earn the minimum wage, and the difference between the minimum wage and average wage is still quite large.
      - yummyfajitas 15y ago
        I don't think noting that flexibility doesn't overcome the stickiness of wages is enough to sink all of Keynesian economics. Huh? Wages lie along a continuum of flexible to sticky (typically expressed as a time, i.e. "how long before wages adjust"). You claimed US wages lived on the flexible end of the continuum, yet the US still has recessions. Keynesian economics claims this cannot occur. If you want to borrow a habit from real science, borrow the habit of rejecting theories when they disagree with reality. If you believe US wages are flexible, and the US still has recessions, then the US provides a direct counterexample to Keynesian economics. As to my actual views, I believe our recently ended recession is primarily structural. If it were Keynesian, the increases in government worker pay would have more of an effect than minimum wage hikes. I'm just pointing out that the US has not pursued any flexible wage policies that I'm aware of, and has actively reduced wage flexibility.
- JamisonM 15y ago
  I think it is because while government spending is hard to do, wage flexibility is much closer to impossible. First of all, once you strip away all the protections for workers at all levels of government to deal with this one event you will never be able to put them back again. (Hard-core libertarians might view this as a great victory but they are very much in the minority.) Then, you need to let all sorts of long-term contracts be broken, (legally somehow) between suppliers up and down the supply chain of all sorts of complex industries to allow for the "gains" from the wage drops to be enjoyed by the whole system instead of just going into the pockets of the capital-owners who slash their work-force pay and hire nobody. And so on... so you end up radically changing on what will be a permanent basis a modern economy the functioned reasonably well for quite a while to fix a temporary problem. (Probably destroying the economy really, all the legal wage protections being removed would be very, very bad.)
  - yummyfajitas 15y ago
    First of all, once you strip away all the protections for workers at all levels of government to deal with this one event you will never be able to put them back again. History clearly shows that government worker's unions have no political power and never get what they want. Similarly, the RIAA/MPAA - politicians are to busy worrying about innovation and consumers to protect the starving record company execs. ...instead of just going into the pockets of the capital-owners who slash their work-force pay and hire nobody. According to Keynesian theory, the only reason those capital-owners don't hire workers is because real wages are too high. If wages were lower, the capital-owners would hire workers to increase their own profits. If you don't believe in Keynesian economics, that's fine. I also believe it to be useful only in limited circumstances. In that case, gizmo is wrong, and austerity will not be bad for the economy. But my question is why Keynesians aren't pushing for wage flexibility. And so on... so you end up radically changing on what will be a permanent basis a modern economy the functioned reasonably well for quite a while to fix a temporary problem. According to Keynesians, what you call the "permanent basis [of] a modern economy" is the cause of every single recession. According to them, absent wage stickiness, large nominal shocks to the economy would be rapidly corrected for, resulting in only real wage adjustments. This is exactly the same effect they attempt to engineer with monetary and fiscal stimulus.

by gizmo 15y ago

justincormack 15y ago

As the other posters here were saying, wages for the young are already very low. The problems are more structural, as technological change is changing what skills are needed, and some countries like Spain just had a huge property boom so everyone was trained for the construction business, which was a complete waste of resources. Existing businesses may never hire these people, so a lot of new businesses are needed, which takes time and capital, and a startup culture that much of southern europe does not have much of. Emigration is the current solution for many people instead.

yummyfajitas 15y ago

Again, economically speaking, the problem is austerity and wage stickiness put together. Austerity with nominal wage flexibility is fine - real wages will drop, employers will hire cheap employees, and there will be no unemployment or recession. Since austerity seems unavoidable, why aren't you and other people who buy into Keynesian theory pushing for wage flexibility?

roc 15y ago
Because the US shows that wage flexibility by itself isn't particularly effective? US wages are just about as sticky as Europe's, despite a far lower (and dropping) section of the market under collective bargaining. So why tinker with that ball of wax and hope for the best when you can just set a moderate inflation target and achieve the same end result? Everyone knows what moderate inflation does. It's well studied and understood. People who work or put their money to work have little to fear from it (as rates of return reflect and include expected inflation). Naturally, you don't want high inflation or runaway inflation, but it's clearly possible to hit and maintain something like a 4% inflation target.
- yummyfajitas 15y ago
  Because the US shows that wage flexibility by itself isn't particularly effective? In that case [1], Keynesian economics is wrong and we must discard it's conclusions. Absent Keynesian economics, we have no reason to believe austerity will cause "criminal levels of capital waste" (to borrow gizmo's language). So therefore, there are no drawbacks and we should pursue austerity. Right? [1] I don't actually believe this, I'm going along with it for the sake of argument. My actual view: the US did not cut the wages of government workers during the recession, nor did it reduce real wages (on the employer side) by cutting benefits (e.g., SS contributions, subsidies for health insurance, etc). In fact, during the current recession, the US increased wage stickiness by raising the minimum wage.
  - roc 15y ago
    1. I don't think noting that flexibility doesn't overcome the stickiness of wages is enough to sink all of Keynesian economics. 2. There is no economic theory that has ever stood entirely on its original principles and made good predictions of how the economy works. Modifying and refining cases in response to real data is how all science progresses -- if I may be so bold as to suggest that economics could stand to borrow more habits from real science than the philosophy and morality that seems to have driven it for the last few decades. To your actual view: I'm not sure how much a small bump in the minimum wage increases wage stickiness over the economy. Very few workers actually earn the minimum wage, and the difference between the minimum wage and average wage is still quite large.
    - yummyfajitas 15y ago
      I don't think noting that flexibility doesn't overcome the stickiness of wages is enough to sink all of Keynesian economics. Huh? Wages lie along a continuum of flexible to sticky (typically expressed as a time, i.e. "how long before wages adjust"). You claimed US wages lived on the flexible end of the continuum, yet the US still has recessions. Keynesian economics claims this cannot occur. If you want to borrow a habit from real science, borrow the habit of rejecting theories when they disagree with reality. If you believe US wages are flexible, and the US still has recessions, then the US provides a direct counterexample to Keynesian economics. As to my actual views, I believe our recently ended recession is primarily structural. If it were Keynesian, the increases in government worker pay would have more of an effect than minimum wage hikes. I'm just pointing out that the US has not pursued any flexible wage policies that I'm aware of, and has actively reduced wage flexibility.
JamisonM 15y ago
I think it is because while government spending is hard to do, wage flexibility is much closer to impossible. First of all, once you strip away all the protections for workers at all levels of government to deal with this one event you will never be able to put them back again. (Hard-core libertarians might view this as a great victory but they are very much in the minority.) Then, you need to let all sorts of long-term contracts be broken, (legally somehow) between suppliers up and down the supply chain of all sorts of complex industries to allow for the "gains" from the wage drops to be enjoyed by the whole system instead of just going into the pockets of the capital-owners who slash their work-force pay and hire nobody. And so on... so you end up radically changing on what will be a permanent basis a modern economy the functioned reasonably well for quite a while to fix a temporary problem. (Probably destroying the economy really, all the legal wage protections being removed would be very, very bad.)
- yummyfajitas 15y ago
  First of all, once you strip away all the protections for workers at all levels of government to deal with this one event you will never be able to put them back again. History clearly shows that government worker's unions have no political power and never get what they want. Similarly, the RIAA/MPAA - politicians are to busy worrying about innovation and consumers to protect the starving record company execs. ...instead of just going into the pockets of the capital-owners who slash their work-force pay and hire nobody. According to Keynesian theory, the only reason those capital-owners don't hire workers is because real wages are too high. If wages were lower, the capital-owners would hire workers to increase their own profits. If you don't believe in Keynesian economics, that's fine. I also believe it to be useful only in limited circumstances. In that case, gizmo is wrong, and austerity will not be bad for the economy. But my question is why Keynesians aren't pushing for wage flexibility. And so on... so you end up radically changing on what will be a permanent basis a modern economy the functioned reasonably well for quite a while to fix a temporary problem. According to Keynesians, what you call the "permanent basis [of] a modern economy" is the cause of every single recession. According to them, absent wage stickiness, large nominal shocks to the economy would be rapidly corrected for, resulting in only real wage adjustments. This is exactly the same effect they attempt to engineer with monetary and fiscal stimulus.