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A balanced wage policy is not what it seems

October 9, 2018 by andrew36 1 Comment

In my many years of experience in Brussels and at the OECD, of all employers’ representatives those from Austria were amongst those that could usually be relied upon for a fair-minded and fact-based exchange on economic-policy issues. This undoubtedly reflected a well-entrenched system of “Sozialpartnerschaft” in the Alpine republic. All the more disturbing, therefore, to hear Karlheinz Kopf, General-Secretary of the Austrian statutory employer federation WKÖ, entirely misrepresent the basis for a sensible wage policy. This cannot stand uncorrected.

In a debate[1] with his counterpart from the Chamber of Labour, Christoph Klein, Mr. Kopf argued as follows: employers recognize the principle that both those who put their capital at risk and those that commit their labour are entitled to share in the gains resulting from higher productivity. Respecting this principle means giving workers nominal wage increases that compensate for price increases plus one half of productivity increases. This, he claimed, is the way to ensure that capital and labour benefit equally from technical progress.

That may sound reasonable, but it is either breathtakingly ignorant in macroeconomic terms or is a clever but dishonest way to achieve the opposite effect, namely a permanent shift in income away from workers and in favour of capital. In fact the correct formula for a wage policy that achieves a balanced distribution of gains is inflation compensation plus a (real) increase fully in line with productivity gains. This is easily shown. [Read more…]

Filed Under: Analysis Tagged With: Austria, Chamber of Labour, distribution, golden wage rule, inflation, Klein, Kopf, Markus Marterbauer, productivity growth, wage policy, WKÖ

Is the troika responsible for the Greek fire tragedy?

July 26, 2018 by andrew36 3 Comments

The horrific forest fires near Athens, with terrible loss of life, have led to claims that the austerity measures imposed on Greece by the troika damaged the capacity of the Greek fire-protection services. Part of the blame for the horrific deaths and property damage in the Greek fire tragedy is therefore to be borne by the troika.

Is this true? It is a complex question which, I understand, is to be part of a formal investigation. That is right and proper. A crucial issue is clearly to what extent decisions on the mix of fiscal measures, for a given amount of fiscal consolidation, were taken by the Greek authorities or the troika. But given that the claim of troika responsibility is already circulating in the media, it is worth looking at the data that are currently available. Eurostat has detailed breakdowns of public spending data that can shed at least some light on the question.* [Read more…]

Filed Under: Analysis Tagged With: austerity, Eurostat, forest fires, Greece, inflation, public spending, troika

Debt rescheduling and the power of exponential growth

June 26, 2018 by andrew36 Leave a Comment

The agreement to reschedule Greek debt has been in the news recently. Frequently it is pointed out that Greek debt has not been forgiven, but “merely” rescheduled. While economists and some journalists argue that this distinction is not really important in an economic sense, I am not sure that this is widely understood. It may therefore be helpful to present a few back-of-the-envelope calculations that show the power of rescheduling debt servicing, which essentially means pushing payments into the future. It brings into play what can be called the “power of exponential growth”, which is like the inverse of the “power of compound interest” that can make debt burdens snowball.

I am going to take two time periods, based on an assessment that the recent Greek debt deal extends “the average loan maturity to over 40 years from 32.5 years currently”.  To keep things simple we’ll use 32 and 40 years. [Read more…]

Filed Under: Analysis Tagged With: debt, debt-to-GDP ratio, Greece, inflation, Martin Sandbu, nominal growth, rescheduling

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  • A balanced wage policy is not what it seems
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  • Is the troika responsible for the Greek fire tragedy?
  • Debt rescheduling and the power of exponential growth
  • Merkel and Macron in Meseberg
  • Analysis of the proposal „A constructive approach to Euro Area reform“
  • Unemployment in the Euro Area passes a milestone

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Recommended links

  1. Mainly macro (Simon Wren-Lewis)
  2. Paul Krugman
  3. econoblog101 (Dirk Ehnts)