Wednesday, June 2, 2010

What’s a Flexible Labor Market?

Now that countries like Greece and Spain are being asked to engineer an internal devaluation of 20% or more, a scenario that is quasi-apocalyptic in terms of the implicit fall incomes and rise in unemployment it would entail, we may have occasion to mourn the absence of centralized wage bargaining, as in, say, Austria. Once upon a time economists denounced such systems as “inflexible”, because they didn’t reflect, with pinpoint accuracy, the shifting conditions in each firm. Now, however, it is hard to miss the point that they provide flexibility on an economy-wide level that makes adjustment less excruciating. Just mentioning.

1 comment:

jsalvati said...

Devaluation causes a rise in unemployment? Did you mean fall or are you talking about something else?