Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
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
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