Saturday, January 31, 2015

Rising Unit Labor Costs Not Responsible For Weak EZ Economy

Stephen Rattner's article, which I posted and commented on two days ago,  argued that anti-business regulations in the EZ, which keep unit labor costs from falling, are the cause of the EZ recession.  Paul Krugman provides us with a picture of rising unit labor costs in the EZ and he argues that they are pretty consistent with what one would expect with a 2% inflation target.  Germany's unit labor costs are an exception on the low side.  They are much lower than those of other EZ nations.  Italy is an exception on the high side.  Furthermore,  the EZ has a trade surplus with the rest of the world.  The EZ recession can't be explained by a lack of global competitiveness.  The basic problem in the EZ is a lack of domestic demand.  Does Rattner believe that wage cuts would increase EZ wide demand?

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