Wage Deflation In The Eurozone Has Been Very Slow

This article shows that wage deflation has been very slow in the eurozone. This means that neither of the two prongs of the eurozone strategy has been working to restore growth. Austerity has not increased investor confidence in sovereign bond offerings, and internal wage deflation has not made the troubled economies more cost competitive.

One of the comments to the article reminds us that Keynes did not believe that wage deflation was the solution to recession. He argued that falling wages only reduced consumption further and lowered aggregate demand. One of the major differences between the Neo-Keynesians and the Neo-Classical economists is the Neo-Keynesian assumption of sticky wages. Without the assumption of sticky wages, there is not much difference between them and the classical economists that Keynes criticized. Things would be even worse if wages were not sticky according to the real Keynes. Does anyone really believe that lower wages in Southern Europe would turn their current account deficits into surpluses?