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I think it should be the same.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Tue Mar 3rd, 2009 at 10:26:40 AM EST
[ Parent ]
So, "if there is no cut in hourly wages, but only the number of hours workedworkers is reduced, there is no deflationary pressure by this"?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Mar 3rd, 2009 at 10:27:46 AM EST
[ Parent ]
At least no direct. The main reason why layoffs usually have deflationary pressure is, because with a higher unemployment the supply of the production factor labour is higher. If the reduction of workers occurs in a highly unionised branch or country, then I wouldn't expect to an automatic transfer from higher unemployment into lower wages and lower prices.
As production and therefore supply is cut along with the reduction in demand, this should cancel the lower wage sum as well. Perhaps even have a positive effect, because the gov't moves into bigger deficit with automatic stabilisers. Or in this situation, where only hours are cut, probably only very few of these workers will seek a second job, which would eliminate the pressure on wages completely.

If you have any suggestion for a mechanism how this should create deflation, I would be very interested, but I don't see one.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Mar 3rd, 2009 at 10:50:45 AM EST
[ Parent ]
Is it too obvious to suggest that this would decmiate disposable income, which would spread low demand across sectors of the economy which would otherwise be immune?

That's why it's bad - with a four day week some workers might at least consider second jobs, small businesses or other sources of income.

With the same hours being worked for less cash, spending drives off a cliff and demand falls even further, while unwanted products continue to pile up, because buyers can't afford them.

The UK solution has been to temporarily lay off workers, sometimes with minimal pay, sometimes with nothing at all. That doesn't work any better.

But the problem is strategic. It's not that there isn't useful work these people could be doing, and being paid for.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 3rd, 2009 at 12:41:17 PM EST
[ Parent ]
Is it too obvious to suggest that this would decmiate disposable income, which would spread low demand across sectors of the economy which would otherwise be immune?
I have already answered that before. The supply takes a hit of the same size. So there is no tilt in the balance of supply and demand.

That's why it's bad - with a four day week some workers might at least consider second jobs, small businesses or other sources of income.

Perhaps, but not a large share of them. After all there is the assumption, that this is a temporary thing. One has to resort to other measures, if the workers can't go back to full hours in a couple of months. More over even with high unemployment European countries have managed to stay out of deflationary spirals for the last decades.

With the same hours being worked for less cash, spending drives off a cliff and demand falls even further, while unwanted products continue to pile up, because buyers can't afford them.

That would be a catastrophe. If workers are responsible they will refuse to work for lower hourly wages, even if they get laid off otherwise. If I have understood Starvid correctly (not in the diary, but in the comments below), there is no reduction in hourly wages in Sweden. Workers in highly unionised branches should even demand increases of at least 2.5% in hourly wages. An hourly wage reduction is only a beggar your neighbour policy, and Sweden is already highly competitive.

The UK solution has been to temporarily lay off workers, sometimes with minimal pay, sometimes with nothing at all. That doesn't work any better.

That is at least partially a problem of the gov't. Until the current turmoil is over, it would be useful to increase and prolong unemployment benefits.

But the problem is strategic. It's not that there isn't useful work these people could be doing, and being paid for.

But not currently in the production of cars. So it is not useful to have these workers working in the company and produce for stock piling.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Mar 3rd, 2009 at 01:02:42 PM EST
[ Parent ]
Here's a thought: Why don't we take all these useless car factories and re-tool them to make electric trains?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Mar 3rd, 2009 at 02:53:08 PM EST
[ Parent ]
Well, quite.

Also windmills, PVs, electric cars for use in city centres - even Boris is getting enthusiastic about this now - and etc.

Or we could pay people less to produce things which aren't selling. Fail.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 3rd, 2009 at 03:47:07 PM EST
[ Parent ]
The spending for retooling alone would be enough to reinflate the global economy. You'd pretty much have to through out all the machines and start over.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt št gmail dotcom) on Wed Mar 4th, 2009 at 10:00:33 AM EST
[ Parent ]
While this might be a reasonable thing to do under specific conditions, I think that setting these conditions requires action by people, that are neither you, nor me, nor the involved corporations and trade unions, but those who can make a credible comittment for future buying of electric trains.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Wed Mar 4th, 2009 at 05:41:40 PM EST
[ Parent ]
The personal automobile is going to go extinct within the next two and a half decade, when people begin to realise that 140 $ oil was not a one-time thing. There is only one viable alternative for overland bulk cargo and personnel transport (well, two if you count river barges as "overland").

There's gonna be a market, alright.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 5th, 2009 at 11:53:00 AM EST
[ Parent ]
Not so soon. Even 1000$ oil wouldn't stop people from driving. At least not in Europe - and at such a price some demand destruction elsewhere should occur.

And I doubt that the personal automobil is going extinct anyhow. You can use internal combustion machines with hydrogenium (synthesized e.g. from water with wind or nuclear energy), biodiesel, natural gas, ... and you can have cars based on compressed air and electric cars (again with plenty of possible renewable sources). I simply can't see the terrible energy scarcity, that would be required to end the car.

For sure people will drive less, and the average weight of the cars will be reduced. But that isn't the end of the car.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Thu Mar 5th, 2009 at 12:17:08 PM EST
[ Parent ]
Prohibitive gasoline price levels for overland transportation in Denmark are about three times current gasoline prices (that's where the marginal cost of driving four people in a car exceeds the cost of four long-distance rail tickets).

Of course, your milage may vary (pun sorta intended) with your local gasoline tariff structure and rail ticket prices.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 5th, 2009 at 01:11:18 PM EST
[ Parent ]
If I have been earning five days' pay for five days' work, and am suddenly reduced to four days' pay for four days' work, that's going to hurt.

Enough, possibly, to make me unable to decline an offer from another company for four and a half days' pay for five days' work.

Isn't that a mechanism by which this could contribute to wage deflation?

by Sassafras on Wed Mar 4th, 2009 at 05:28:33 PM EST
[ Parent ]
What this is in effect a reduction to a six hour (or well, six hour and 24 minutes) workday. Supporters of stuff like the French 35 hour workweek should be celebrating...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Mar 4th, 2009 at 05:45:16 PM EST
[ Parent ]
Hmm,

we continentals are boring people sticking to jobs, hoping for better times.
I really don't think that a lot of people working shorter are changing their jobs. Industry jobs are relatively well paid. It doesn't necessarily pay more to switch job, when you have some qualifications for what you do, and the most likely employers for you all have the same collective bargaining agreement with the unions. And if the economy goes up, an increase in worked hours is easier to reestablish, than a fight on higher hourly wages won - plenty of examples for that.

More over, who is going to offer you any job in these times? There are few corporations, that suffer from undercapacity. They are happy, when they have work for the people, that they already have.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Wed Mar 4th, 2009 at 07:07:03 PM EST
[ Parent ]

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