tag:blogger.com,1999:blog-8732662769765511163.post1537576467015920334..comments2023-07-31T11:06:29.485+02:00Comments on Transition: The debacle of European social-democracyD. Mario Nutihttp://www.blogger.com/profile/17319653816487296802noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-8732662769765511163.post-30252252109962072722009-12-02T18:46:13.726+01:002009-12-02T18:46:13.726+01:00Comment to Janet's comment
I did not mention ...Comment to Janet's comment<br /><br />I did not mention international competitiveness, but employment. Ceteris paribus, if labour costs increase firms' demand for labour, in terms of hours, at least, diminishes. Of course if labour productivity increases, this could offset the increased labour costs per unit of time, as always is the case. Historically, since the nineteenth century, owing to increase in productivity, real wages have progressively grown and the working week has been progressively reduced. But if at any given moment of time you decrease the working week at an unchanged weekly wage, the unit costs increase and labour demand decreases, both because of the scale and of the substitution effect. At least unless you do not adopt some compensatory measure, as the French did by liberalizing the shifts and night work, increasing the time utilization of capital.Alberto Chilosihttps://www.blogger.com/profile/12396350222780208837noreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-70559987213364198872009-12-02T18:06:11.036+01:002009-12-02T18:06:11.036+01:00This is a common objection. I presume only that th...This is a common objection. I presume only that there will not be extra productivity gains from the 35-hour week as such (why should there be?), and therefore the time path of productivity will remain unchanged. Whatever happens to productivity, wage costs per unit of output – while not necessarily increasing over time, as you rightly say – will necessarily be higher than they would have been without the reduction of the working week at unchanged weekly wages. Hence the loss of competitiveness – again, with respect to what it would have been otherwise.D. Mario Nutihttps://www.blogger.com/profile/17319653816487296802noreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-14833095102583654142009-12-02T17:48:36.604+01:002009-12-02T17:48:36.604+01:00You argue that the introduction of a 35-hour worki...You argue that the introduction of a 35-hour working week for an unchanged weekly wage would reduce international competitiveness. But this presumes that there are no productivity increases to reduce, offset or even over-compensate the rise in hourly wage costs. Therefore a loss of competitiveness - depending on unit labour costs not per hour but per unit of output - should not be taken for granted.Janetnoreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-8818281706225741952009-12-02T00:26:19.973+01:002009-12-02T00:26:19.973+01:00"A reverse Phillips curve (your interpretatio..."A reverse Phillips curve (your interpretation of German and Italian post-war growth)? only as a special case of a long term relationship – though I am not entirely convinced."<br /><br />The basic reason for an inverse relationship between average inflation and growth, or a direct long run relationship between average rate of inflation and average rate of unemployment may be that higher average inflation could be an indicator of the propensity towards stop and go policies. As a consequence of prices and wages being more rigid downwards and more flexible upwards, the cost of stops in terms of unemployment and of lost production should be higher than the advantages of gos. Of course if a higher rate of inflation were to be maintained relatively constant without stops and gos this would not apply, but it would not be particularly advantageous, but for the inflation tax, and disadvantageous for the distortions induced by its avoidance. Another reason could be that a higher long run average rate of inflation could be a symptom of inflation getting out of hand from time to time, with the usual negative economic consequences both of high inflation and of the ensuing stabilization. <br />May be the above could apply to the comparison of the German and the Italian cases mentioned in the previous comment.Alberto Chilosihttps://www.blogger.com/profile/12396350222780208837noreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-61873476306373739752009-11-30T18:16:17.085+01:002009-11-30T18:16:17.085+01:00Thank you Alberto, for your many useful comments. ...Thank you Alberto, for your many useful comments. <br /><br />On the 35-hour week at unchanged weekly wage (your first comment), if I understand you correctly you are saying that the rise in unit labour costs is bound to reduce the number of hours worked but, in principle, for a shorter working week this negative effect might still be accompanied by a rise in jobs. I note that you regard this as unlikely in practice, especially in a longer run where more capital intensive techniques might be chosen as a result of the rise in wage costs, and in view of some labour costs being fixed regardless of the number of hours worked. Fair enough. <br /><br />Could the political trade cycle be regarded as a foundation for Central Bank Independence? I suppose it could, if the only trade cycle mechanism was political and if one wished to avoid cycles at all costs. But the establishment of the principle of Central Bank Independence in the late 1980s was indeed based on rational expectations thery, because of the associated lack of long-term trade-off between unemployment and inflation. Without that trade-off you might as well delegate inflation targeting to the Central Bank, without sacrificing other targets for which the government remains responsible. <br /><br />A reverse Phillips curve (your interpretation of German and Italian post-war growth)? only as a special case of a long term relationship – though I am not entirely convinced. <br /><br />Greater competition in the labour market, especially in liberalizing access to professions and the pricing of their services, as Bersani tried to achieve, may yield efficiency gains and improve distribution. But the point is that, as long as there is imperfect competition in the market for goods and services, employers will value the marginal physical product of labour not at the price of that product, but at its marginal revenue – which falls faster than price and can well be negative. At a negative marginal revenue obtainable from labour marginal productivity no additional employment would be generated even if the wage rate fell down to zero. Whereas, starting from from a non-competitive equilibrium, an improvement in competition will raise marginal revenue by definition and therefore also raise employment. <br /><br />Finally, the causes of the Iraq war may be more complex that I make them, but: 1) war on Iraq was already on the “New American Century” agenda” of Bush, Cheney and Co. long before 9/11; 2) Sir Jeremy Greenstock, Britain's ambassador to the United Nations at the time of the Iraq war, said last Friday at the Chalcot enquiry: "I regarded our invasion of Iraq … as legal but of questionable legitimacy in that it did not have the democratically observable backing of the great majority of member states, or even perhaps of the majority of people inside the UK." http://www.guardian.co.uk/uk/2009/nov/27/iraq-invasion-legitimacy-doubts. Motives may have been complex, but dishonourable – especially for a socialdemocratic government. Do follow the current Chalcot enquiry (http://www.iraqinquiry.org.uk/).D. Mario Nutihttps://www.blogger.com/profile/17319653816487296802noreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-21223821791927816272009-11-29T23:49:43.459+01:002009-11-29T23:49:43.459+01:00A couple of further comments.
You write: “sanction...A couple of further comments.<br />You write: “sanctioned by Central Banks’ complete independence from government, rooted on the fragile foundations of the theory of rational expectations (that denies the existence of a long-term trade-off between inflation and unemployment thus leading to the delegation of inflation targets to Central Banks)”<br /><br />Couldn’t instead the theory of the political trade cycle be the theoretical foundation? In a sense whether an independent central bank leads to better results is an empirical issue. In the end it amounts to the issue of check and balances (such as an independent judiciary). Moreover in the long run higher average inflation could be associated to lower, not to higher employment, contrary to what is often assumed. A case in point is the comparison between the post-war development in Italy and in Germany. Germany, with a strong independent central bank, has had on average lower inflation, higher employment and higher growth in the post-war period.<br /><br />You write: "Competition has been largely neglected by the Left, although greater competition in the market for goods and services would have certainly contributed to create additional employment much more effectively than any increase in labour market competition through the measures of labour mobility and wage flexibility accepted and implemented by the Left."<br /><br />They did indeed introduce such measures in Italy, where the labour market is excessively stiff. Under these circumstances the working class is divided in have and have not, at the cost of record levels of long term unemployment and employment in the black economy without any rights. It is hardly understandable how such a situation could be considered socially progressive or acceptable for socialists. (But I see now from what you write below that on this you rather agree.) To have introduced some limited measure of flexibility has resulted in the reduction in the rate of unemployment, especially long-term. Of course this does not imply that you should not try to break the power of organized interests and increase competition, as Bersani honestly did in Italy, albeit with insufficient success. <br /><br />You write: "And the distribution of incomes and wealth – a distinction that probably escapes both Lionel Jospin and the French Group for the Re-Distribution of Wealth (that has just published a futile Report, see Oro 2009) – will have to take into account not only distributive justice but also the incentives and the efficiency associated with it."<br /><br />Indeed, another persistent fallacy of the Left is the heap principle, the vision of the economic problem as the partition of an existing heap, without considering the relationship between the rules of partition and the creation of the heap to be divided.<br /><br />Finally a small point to write “New Labour and to some extent other European governments right and left have joined the USA in illegal imperialist wars for the conquest of major resources, particular oil,” seems a bit too reductionist to me. The motives for the war were rather more complex, even if not all quite understandable.Alberto Chilosihttps://www.blogger.com/profile/12396350222780208837noreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-14122132658257613292009-11-29T23:36:08.057+01:002009-11-29T23:36:08.057+01:00Regarding the disregard of economic laws by the Le...Regarding the disregard of economic laws by the Left, it could be specified as ignoring (or feigning to ignore for populist propaganda reasons) the relationship between quantity and price (or between quantity and cost), together with the fallacy of composition. This has led to the idea that the number of jobs is independent of the burden of pension payments on the economy (leading to the Lafontaine proposal you are referring to, or to the propensity of trade unions in Italy to favour all kind of early retirement provisions of civil servants, with the creation of ample cohorts of baby pensioners burdening for decades the wage costs with the ensuing contributory payments). Another instance is the implicit assumptions, in the proposal for reducing number of hours worked in the week, that the overall number of hours of work demanded by the firms remain the same. Here I have some further comments to make. You write: <br /><br />“Lionel Jospin and Fausto Bertinotti (while in Government) proposed the reduction of the working week to 35 hours by law – without proportionally lowering weekly wages below the level that they would have had without the reduction in hours. The consequent increase in unit labour costs in any open economy unfailingly would have led to a rise in unemployment.”<br /><br /> Firstly, rather than “unfailingly” I would have written “quite probably”. Theoretically speaking there are two contradictory effects of a regulatory reduction of work hours: 1) the substitution effect between number of employed and hours of work in the week by unchanged production, leading to an increase in the number of the employed, and 2) the scale effect, of the reduction of the scale of production because of increased labour costs, leading to lower employment. To this in the longer run you should add the adverse substitution effect on employment of changing the technology using more capital per unit of labour. All this seems a little bit pedantic, since the possibility of the first effect to dominate the other two is rather implausible but for the most naïve of Bertinotti followers. But the second point I want to make is more substantial: a reduction in wages while maintaining the costs of the hourly wage constant would not be enough for keeping unit costs constant, because it would not account for the quasi-fixed costs of employment, namely those costs that do not depend on the hours of work but on the number of employees, such as the cost of hiring and firing, the administrative costs of managing human resources, and some types of fringe benefits that are independent of the weekly hours, such as the factory canteen or nursery, or medical facilities, or specific kinds of legally compulsory benefits, such as vacations or leave of absence for medical reasons. So in order to keep the unit costs constant the hourly wage should be actually reduced because of the increased per hour weight of the quasi-fixed costs. But the adverse consequences on employment of reducing the weekly hours could be compensated by concurrently augmenting the flexibility in the employment of labour, in particularly by allowing an increase in the number of shifts, so as to increase the weekly use of the plants. And this is precisely what Jospin did in France, revealing himself to be shrewder than at first he appeared to be.Alberto Chilosihttps://www.blogger.com/profile/12396350222780208837noreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-61586296897705554262009-11-27T18:08:26.495+01:002009-11-27T18:08:26.495+01:00I readily acknowledge Scotland's commitment to...I readily acknowledge Scotland's commitment to enlightened thinking and equality of opportunities. <br /><br />I was referring to the introduction of top-up fees, which was proposed by Labour Education Minister Charles Clarke and became Law in the Higher Education Act 2004, which came into effect for the 2006-7 academic year. <br /><br />This enabled Universities to charge up to a maximum of £3,225 a year per student; nearly all Universities chose to charge the maximum top-up fee. The government betrayed the promise made in the Labour Manifesto of 2001, that "We have no plans to introduce University top-up fees, and have legislated to prevent their introduction." The Labour Party justified this decision by the feeble, Jesuitical argument that the Law took effect after the end of the 2001–2005 Parliament. <br /><br />True, Scottish Universities do not charge top-up fees – to Scottish students. But in the key vote in the House of Commons, in which the Labour government faced a rebellion and obtained an actual majority of only 5 votes out of a theoretical 160 (over a total of 660), the balance was tipped by 46 Scottish Labour MPs who voted with the government. <br /><br />Surely there is something wrong with the Scottish member from Kirkcaldy and Cowdenbeath, whose party has been resoundingly defeated and ousted in Scotland, deciding education policy in England, Wales and Northern Ireland with the decisive support of Scottish MPs to whose constituents the fees would not apply in Scotland.D. Mario Nutihttps://www.blogger.com/profile/17319653816487296802noreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-36141660050076968762009-11-27T13:49:17.359+01:002009-11-27T13:49:17.359+01:00An informative and provocative read as per usual. ...An informative and provocative read as per usual. Thank you, Mario. However one tiny comment if you permit: John Major only managed to introduce university fees in the UK with the rather obstinate exception of Scotland. Scotland still gives free university education, as far as I understand, as part of its commitment to wealth redistribution and enlightened thinking.Northern viewnoreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-28406695493262465252009-11-27T11:23:50.119+01:002009-11-27T11:23:50.119+01:00I have not been hard enough. The Chilcot Enquiry o...I have not been hard enough. The Chilcot Enquiry on Iraq has now started, you can attend it at http://www.iraqinquiry.org.uk/. <br /><br />And see today's Guardian, "Former ambassador to US Sir Christopher Meyer says Tony Blair decided on Iraq war a year before invasion".'We had to find the smoking gun. There wasn't one' http://www.guardian.co.uk/uk/2009/nov/26/iraq-war-chilcot-inquiry-tonyblair. <br /><br />Tony Blair's failure to get elected as President has saved his proponents and supporters from <br />a huge embarassment. Election to high office would have saved him from exposure and the risk of indictment.D. Mario Nutihttps://www.blogger.com/profile/17319653816487296802noreply@blogger.comtag:blogger.com,1999:blog-8732662769765511163.post-53582189703316422812009-11-27T08:22:59.815+01:002009-11-27T08:22:59.815+01:00A powerful and multi-pronged criticism. But you ha...A powerful and multi-pronged criticism. But you have been much too hard on Blair.Jerrynoreply@blogger.com