Wednesday 24 February 2010

Growth before "Growth"

Pedro Lains below suggests that a push for radical current account deficit reduction would definitely endanger Portugal's presumptive recovery. Undoubtedly it will. But the real question facing Portugal in these last, say, 10 years has not been on the demand side of the economy, but rather on the supply side of the economy. To put it in terms that would make the Paul Krugman of the 1990's shiver, Portugal's (firms) "competitiveness" is in
real trouble due to successive years of rising unit labor costs (with a trajectory very similar to Spain's, but even more pronounced) and a political refusal to learn, as it were, the new economical-financial rules that came to prevail with the adoption of the single european currency. That is why nominal wages reduction which some months ago would be an unthinkable idea is increasingly being discussed by Portuguese economists as a serious option.

3 comments:

  1. sou jurista e tenho falta de conhecimento cientifico acerca de economês.
    Tendo em conta a minha formação: Bom livro para começar?

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  2. Eu recomendaria "Where Keynes Went Wrong", facilmente googlável e comprado na Amazon!

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  3. In my opinion, the rise of unit labor costs is not the problem. There are a lot of countries in which the labor cost is a lot higher than Portugal. The average wage in Portugal is a lot less than in most European countries.

    I think that the problem of competitiveness is due to poor management and inflexible labor laws. I think that what contributes to the competitiveness problem are the employees that have a job but have nothing to do, and that is either a management problem or a labor law problem.

    Also, that poor management is well payed. The discrepancy between top salaries and the minimal wage is huge, so maybe the rising unit labor cost is not the main problem.

    But of course, cutting employee's wage is a lot easier to achieve, as long as it doesn't impact their own wages.

    Fix the problem, don't go with the easiest solution.

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