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Removing or degrading workers' security against hardship during unemployment forces workers to accept lower wages and/or less safe and comfortable working conditions.

Wage suppression is lowering unit labour costs. Unit labour costs, judging by historical experience, need to remain at approximately 70 % for a modern industrial society to function. Pushing unit labour costs substantially below this creates demand-side crises, like the one we are presently seeing. It is conceivable that pushing unit labour costs substantially above this value will create other forms of dysfunction, but such an income distribution has not been observed for any length of time together in any mature industrial economy, so this remains speculation.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Feb 14th, 2012 at 04:13:14 PM EST
[ Parent ]
But the Hart IV reforms did not substantially degrade anything.

Before Hatz IV there were 2 completely parallel systems of welfare (unemployment benefits and classical welfare ("Sozialhilfe")). The Hartz reforms unified the systems in an attempt to make them more efficient. They also toyed with the procedural details of the system, also in order to increase efficiency and decrease cost.

It is open to debate if the desired effect actually happened.

Yes, there was a concerted effort to keep wage increases down. And, yes, that was a mixed blessing, to put it mildly.

OTOH, maybe you stop whining about the efficient Germans and start getting a little more efficient yourselves.

by cris0 on Tue Feb 14th, 2012 at 05:00:15 PM EST
[ Parent ]
But the Hart IV reforms did not substantially degrade anything.

You were the one who appended the "IV." The Hartz wage suppression programme, taken as a whole, certainly did degrade the income security of the unemployed.

Before Hatz IV there were 2 completely parallel systems of welfare (unemployment benefits and classical welfare ("Sozialhilfe")). The Hartz reforms unified the systems in an attempt to make them more efficient.

The Hartz degradation packages also introduced bullshit measures like excluding the unemployed from benefits when they refused to take shit jobs at shit wages, and reducing their stipend when they failed to find jobs.

OTOH, maybe you stop whining about the efficient Germans and start getting a little more efficient yourselves.

Germany hourly productivity is flat over the last ten years. Every single bit of "competitiveness," so-called, has come from falling wages.

As noted elsewhere, that is a fundamentally unsound policy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Feb 14th, 2012 at 05:13:04 PM EST
[ Parent ]
[...falling wages...] As noted elsewhere, that is a fundamentally unsound policy.
.
Agreed. It's unsustainable in the long run, and harmful to society.

As for the "bullshit" measures, it's not that simple. Yes, able bodied unemployed welfare recipients are expected to work. If they can't find work to their liking, after some time (Months or years, actually) they will be forced to accept any work they can do, otherwise their benefits will be reduced.

I consider this perfectly appropriate. As does, fort that matter, the majority of taxpayers across all parties.

by cris0 on Tue Feb 14th, 2012 at 05:35:02 PM EST
[ Parent ]
This presumes (a) that the hoop-jumping is only aimed at able-bodied workers of sound mind and (b) that the state is prepared to ensure that such work is available at a wage that does not compare unfavourably to the wage they held at their previous employment.

Both are facts not in evidence.

Further, such measures do contribute to a deterioration of labour's overall bargaining position, and must therefore be compensated with some combination of higher baseline unemployment benefits and greater bargaining power for unions. Otherwise, they contribute to unsustainable erosion of wages.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Feb 14th, 2012 at 05:42:28 PM EST
[ Parent ]
It is my understanding that unions in Germany live quite comfortably, and in a position of strength, compared to, say, the US, or Mexico, or China, or Japan, or the UK, or Australia, or any number of other states.

Greece probably excluded.

In fact, the reason we have no minimum wage in Germany is that unions fought hard to prevent it to be enacted.

by cris0 on Tue Feb 14th, 2012 at 06:42:45 PM EST
[ Parent ]
It is my understanding that unions in Germany live quite comfortably, and in a position of strength, compared to, say, the US, or Mexico, or China

Yeah, you're not really making a great case by comparing Germany to third-world countries like that.

Oh, and your prejudice is showing. The Greek unions have less power than the German ones, and stand to have even less if current German demands are met.

In point of fact, there is a very clear relationship between union power and prosperity: More powerful labour unions makes your country prosperous by enforcing prosperity-creating economic policies like high wages and full employment.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Feb 14th, 2012 at 07:21:57 PM EST
[ Parent ]
It is self serving for unions to fight minimum wage laws when they are in an effective partnership with employers, as it reinforces their position as the ONLY source of protection for labor.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Feb 15th, 2012 at 12:51:40 PM EST
[ Parent ]
lies in driving down wages compared to other countries:

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Feb 14th, 2012 at 05:27:55 PM EST
[ Parent ]
Forgot to link to the source.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Feb 14th, 2012 at 05:38:35 PM EST
[ Parent ]
German wages started to decline in real time from 1993 or 1994. So ALG II, starting in 2005, can't really be the main cause. Perhaps more important, the low wage sector in Germany,  where ALG II probably had a influence is in the service sector. The Export sector tends to be manufacturing. So the whole chain of reasoning doesn't really works.

I will add that Germany and Greece are hardly the only trade partners of each other.

by IM on Sat Feb 18th, 2012 at 10:12:57 AM EST
[ Parent ]
Foreign trade consists of both exports and imports.

Nobody here is begrudging Germany its exports. What I and others are saying is that Germany needs to either stop short-charging its workers so they can start importing stuff from other European countries, or accept that Germany will never get paid for its exports.

Because there is one and only one way to pay for exports: Through imports.

The low-wage service sector may be unimportant to the export side (to low order), but it is very important to the import side.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 10:47:25 AM EST
[ Parent ]
It bears repeating at this point that the Eurozone as a whole has balanced external trade and negligible foreign-denominated debt so the entire Eurozone crisis is one of internal redistribution. There is no fundamental pressure on the exchange rate (if you take the view that trade-weighing is a good proxy for the "fundamentals" of exchange rates) and there is no collective risk of insolvency (as all the debt overhang is in the fiat currency that the ECB issues).

This is partly why it's utter madness that the Serious People of Europe continue argue for IMF involvement. Why should the IMF get involved in loaning Euros to Euro countries, when there's a perfectly functional ECB? And that's why especially the BRICs are increasingly annoyed by EU suggestions for IMF involvement, saying (not without irony) that the Eurozone "hasn't done its homework" and that it has sufficient resources.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 10:53:37 AM EST
[ Parent ]
Nobody here is begrudging Germany its exports.

Apart from you.

 >What I and others are saying is that Germany needs to either stop short-charging its workers so they can start importing stuff from other European countries, or accept that Germany will never get paid for its exports.<

They could also import from non-euro countries; what then?

 >Because there is one and only one way to pay for exports: Through imports.<

Germany is also one of the biggest importers in the world.

 <The low-wage service sector may be unimportant to the export side (to low order), but it is very important to the import side.>

But then you are shifting your argument

by IM on Sat Feb 18th, 2012 at 11:14:30 AM EST
[ Parent ]
They could also import from non-euro countries; what then?

Then the Euro falls relative to those currencies, until those imports stop. That is why you have a floating currency.

This isn't fucking rocket science.

<The low-wage service sector may be unimportant to the export side (to low order), but it is very important to the import side.>

But then you are shifting your argument

No, my argument has always been about current accounts imbalances.

That it comes as a surprise to you that current accounts imbalances can arise from both import suppression and export subsidies speaks to the quality of your knowledge of national accounting, not to the quality of my argument.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 11:21:27 AM EST
[ Parent ]
No, my argument has always been about current accounts imbalances.

That is not true; you have a habit to conflate trade and sometimes even merely exports with CA.

 That it comes as a surprise to you that current accounts imbalances can arise from both import suppression and export subsidies speaks to the quality of your knowledge of national accounting, not to the quality of my argument.

You are assuming quite a lot; but if if you prefer to make my arguments in your head to defeat them, go ahead.

by IM on Sat Feb 18th, 2012 at 12:14:25 PM EST
[ Parent ]
They could also import from non-euro countries; what then?

Under an "economic equilibrium" frame it would go something like this:

Then the Eurozone would no longer be in trade balance as a whole so there would be a downward pressure on the exchange rate. The rest of the Eurozone would benefit from the lower exchange rate, and would increase their exports outside the Eurozone, too. Equilibrium (again balanced trade EZ-wide) would be attained at a lower exchange rate. But now Germany would be running a smaller trade surplus and some of the deficit countries a smaller deficit.

Imports would become more expensive and that would lead to some pain, but also for opportunities for import substitution if because of the lower exchange rate production in the EZ became profitable where it was marginally unprofitable before.

Unfortunately, the ECB would react to the consumer price inflation resulting from the more expensive imports by raising interest rates and nipping in the bud any private-sector attempts at investment for import substitution. And the public sector, as we know, cannot do anything meaningful without running afoul of EU "illegal state aid" rules.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 01:51:03 PM EST
[ Parent ]
It's funny how one does not separate different kinds of inflation from each other (in central bank practice). It's quite absurd to me that the central bank should increase rates to combat inflation which is caused by dearer imports (caused by an oil shock, for example). It's not like it's going to help, is it? Especially not if you're not looking at core inflation, but rather at the CPI!

The reverse should be true as well: don't cut rates and blow bubbles just because you're importing disinflation from China.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Feb 18th, 2012 at 02:32:00 PM EST
[ Parent ]
It's funny how one does not separate different kinds of inflation from each other (in central bank practice).

Central banks like their interest rate management to be based on very very simple rules of thumb.

There is more than one rate of inflation? Wud? <bits of central banker cranium all over the walls>

I think they use deliberately obscure language so as to hide the fact that there isn't much there, there. Also it might explain why they spend all their time admonishing the fiscal authorities on fiscal policy and protesting that nobody else should admonish them on monetary policy.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 02:43:56 PM EST
[ Parent ]
deliberately obscure language so as to hide the fact that there isn't much there

As we say in Sweden: det dunkelt sagda är det dunkelt tänkta, "what is unclearly said is unclearly thought".

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Feb 18th, 2012 at 02:50:59 PM EST
[ Parent ]
You know another funny thing the ECB does? If a government raises VAT, they interpret the resulting price rise as inflation, and raise interest rates.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 02:45:29 PM EST
[ Parent ]
You know another funny thing the ECB does? If a government raises VAT, they interpret the resulting price rise as inflation, and raise interest rates.

Yeah, about as funny as a debt-depression death spiral.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 19th, 2012 at 08:26:20 PM EST
[ Parent ]
Or when the inflation is driven by increased interest rates...

A swedish kind of death:

Riksbanken var oenig om räntebeslutet - Ekot | Sveriges Radio
Förklaringen finns bland annat i högre priser på livsmedel och energi, och i Riksbankens egna räntehöjningar. The explanation [to higher inflation] is partly found in increased prices on food and energy and also in the increased interest rates of the Central Bank.
Men till det kommer ett problem med att effektiviseringen av produktionen sjunkit, att produktiviteten blivit sämre än väntat. Något som i sin tur delvis bottnar i att det är goda tider på arbetsmarknaden med fler jobb och högre löner.But adding to that is the problem that the efficiency increase in production has declined, the productivity is worse then expected. That in turn is related to the good times on the labor market with more jobs and higher salaries.
Det är de problemen som vice riksbankschefen Svante Öberg i redan i december ville stävja med höjd styrränta.These are the problems deputy chairman Svante Öberg already in december wanted to stop by increased interest rate.


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Feb 18th, 2012 at 03:53:39 PM EST
[ Parent ]

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