by Carrie
Sat Jun 5th, 2010 at 04:06:13 PM EST
Seen on IM:
Migeru: In what economic universe does making layoffs cheaper for the employer promote employment?
related question
in what economicpolitical universe does it make sense for Spain to propose cheaper layoffs for troubled firms at a time when everyone is beating the government over the head with the unemployment figures?
JakeS: well, cheaper layoffs reduce structural unemployment in the universe of rational expectations
Migeru: right
Part of the
Reasons for Despair series.
JakeS: and competitive, liquid labour markets with fungible skills
Migeru: structural unemployment is something you worry about in the growth phase
not at the bottom of the slump
plus
in terms of incentives
JakeS: nonono, structural unemployment is the only kind politicians have to worry about
Migeru: if you want to make hiring cheaper, make hiring cheaper
not firing
JakeS: because cyclical unemployment can be compensated for by monetary policy
Migeru: if you make firing cheaper you increase the firings
JakeS: so the politicians shouldn't bother with it
Migeru: oh, right
no zero lower bound or anything
and the ECB is known for its employment-oriented monetary policy
we're well and truly fucked
JakeS: well, you asked in what theoretical universe current policies make sense
Migeru: okay
JakeS: and I answered: Pretty much the theoretical universe pushed by econ textbooks