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Friday, September 29, 2006


claus vistesen

Very interesting indeed ...

And Rogoff is cited for his 'chicken and egg' argument about globalization and central banks ... good stuff. This one definitely merits some further thought.

Oh and the link is not right (I think) ... this should be the right one;



"“The Fed need not worry that a falling US unemployment rate will quickly generate a rapid acceleration in US wage-driven inflation, as US labour's pricing power is diminished by competition from an augmented global labour supply.”

Yes, that is one reason. But, it depends ...

Labor that has shifted abroad is typically unskilled or semi-skilled labor, employed in production (manufacturing, assembly, etc.) These wage rates typically depend upon union negotiations and are over a long period of time. The jobs that are lost certainly wont affect the inflation rate, except in the manner that the re-employed will have substantially lower wage rates when they exit the manufacturing sector and go into the services sector(at McDonald's, for instance). So, the effect is to lower generally wage levels.

However, skilled labor (programmers, electricians, plumbers, construction workers, and trained staff) will suffer from the tightening of the offering as employment increases. These jobs normally show wage increases under such conditions.

And, I suspect that it is the latter and not the former sector that will prevail. The "China effect" is perhaps very much behind us. The jobs that were going have gone.

Now, as China climbs the skilled-labor ladder, its more and more skilled labor force will compete on international markets. What will happen?

We have a precursor that indicates what might happen. Two in fact, Japan and Korea. Did skilled labor in Western Europe and America suffer seriously from the competition of these two nations in the 1980s and 1990s? Somewhat but not as much as unskilled labor.

And not for as long as both regions can count on productivity gains, so essential to competitiveness. The race in productivity has just begun.

So, economic national priorities, particularly fiscal, should focus on productivity gains. Will they? Not for as long as Europe is a cacophony in terms of national fiscal policy making. For America, fiscal policy will be favorable towards productivity gains, since they appreciated the necessity of it some time ago.

Tim Worstall

As long as everyone remembers that you don't just have to move along curves, you can shift them too. The return of the supply side!
Also, this is exactly the basis that Layard's work on cutting long term unemployment (what became welfare reform in the US) used as a justification. That worked pretty well.


The Economist: "The doubters argued that workers would demand higher wages to protect themselves against the rise in inflation. "

We have a tendency, a bit too much, to look for THE smoking gun. The above is just such an instance.

In an economy with rising inflation, and if in a country like that links wages to inflation automatically (as did Italy with its stupid "scala mobilé" once upon a time), then, yes, unions ask for wage increases that keep pace with inflation ... without understanding that they are simply furthering it.

Linking wages to inflation is suicidal. It simply promotes more inflation. So, the policy objective is not to convince unions to reduce thier wage demands (for which Europe has a particular talent by enjoining talks directly between the state and labor unions).

It is to control inflation by fiscal means. This can mean reduced taxation, but more than likely what does the trick is fiscal enticement for productivity gains (in the form of accentuated amortization of technology related expenditures).

What has changed the context, and the German unions seem to have begun to understand, is that globalization has reduced thier negotiating clout. The unions in car manufacturing negotiated themselves out of thier jobs in the 1990s with exorbitant pay rises when pay rises were thought to be systematically forever. They are now accepting reluctantly increased time on the job for the same pay - thus reducing hourly wage rates.

But unions represent, in fact, only a minority of the working population. What about the rest of us? No man (or woman) is an island in today's intricately complex, modern economy. We learn that running in place might be more wise, perhaps, than running off in the pursuit of a higher pay in a job that might prove as lasting as the morning dew.

The qualified worker today is an intelligent being that senses the ambient changes in the work market, perhaps better than any generation in the past. And, as more of us become Information Workers, our sensors can only get better.

What's the point? This: The education of "work related" skills is becoming increasinly more imperative, more so than the pursuit of knowledge in areas less related to the needs of the labor market.

Philosophy majors should not be astounded that McDonalds is the only company that cares to hire them out of university. (8 ^ 0)

Tom Grey

I just read the Wiki note on the Philips curve, which totally ignores Friedman's monetary theory about controlling inflation thru controlling the money supply (in practice, Central Banks adjusting interest rates).

It occurs to me there are two gov't controllable inflation-employment influences: monetary and fiscal; plus the exogenous globalized system labor & commodity markets, especially oil/gas-energy.

Friedman's monetarism has mostly "won" the stable inflation target reduced money supply fluctuations, and most central banks push for stable price levels (=stable money growth). In this stable money environment, perhaps national fiscal policies recreate a fiscal-inflation / unemployment relationship (welcome back, Mr. Phillips).

(see http://en.wikipedia.org/wiki/Phillips_curve )


I like to know what is the phillips curve because I've got a presentation please give me this leter.Thank you

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