Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Quick and dirty translation for the German-challenged, because it's an important point:

I would like to ask the economists at the Weltwirtschaftsinstitut how, according to their theories, it is even possible to diminish the gap between unemployment payments and salaries. Let alone to reduce it to zero. Within the framework of neoclassical price theory underpinning their arguments, the following must hold:

If Hartz IV were a serious alternative for any appreciable fraction of the working public, then nobody would work for less [than the Hartz IV benefits]. At least if he acts rationally, which is presumed by neoclassical theory. If Hartz IV pays € 1000 and a full-time job only € 900, then you would presumably soon give up the job.

Of course, the orthodox answer is that this is in fact what we will see: Salaries will rise, because the opportunity cost of labour will go up. However, under orthodox price theory, salaries always equal marginal productivity, this means that the workers whose marginal productivity is less than the new equilibrium price level will be laid off.

In the real world, the notion that remuneration always equals marginal productivity is, of course, not even wrong. For one thing, there is no guarantee that the marginal productivity of the factors of production will sum to the total productivity of the enterprise. For another thing, this conclusion presumes symmetric power relationships between employer and employee. (And it's based on a model of human decisionmaking that's completely off its medication...)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 10th, 2010 at 05:58:11 PM EST
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