Monday, July 30, 2012

How can job positions be made available NOW

Good morning economists! I would like to thank you all for reading my blog and leaving constructive comments in the various posts. My article "The Troika is here...now what?" was the cause for controversy this past weekend. I was accused of being an avid supporter of a particular political side and I was even urged to "leave the world of politics".

Let me start by saying that this blog is independent of politics. In my post "Dear politicians, I blame you!" and even my Troika article, I do not mention ANY political parties and I do not discuss any subject other than the economic situation that our country finds itself right now. My references to the government would have been the same no matter which political party was in power. Further, if you read my posts carefully, you will see that I am arguing that a total system restructuring is necessary. This means that all political parties that were in power in the last twenty or so years are responsible for the condition of the economy today. Bottom line the system has failed and we need to fix it.

Having said that, I was also accused of supporting pay cuts and the abolition of the Cost of Living adjustments. Economic theory, however, argues that this is the short run cure to unemployment. This measure was going to be implemented by the Troika no matter what! Suppose the Labour market is represented with the following diagram:
This is what the labour market looks like in the majority of countries. The wage rate is set at WR1. As a result, we have an inequality in quantity demanded and quantity supplied and this is known as unemployment. Only Q1 workers are employed at this wage level. With the abolition of the CoLa and the pay cuts in the PUBLIC sector, to the wage rate level WR2, we have an immediate impact on unemployment. Cheaper labour will be employed at Q2, increasing the number of workers employed from Q1 to Q2. This is the short run cure to unemployment.

Another way to increase employment would be to increase demand for labour but in a period of recession that may prove tricky. The abolition of corporate tax may be helpful but its impact will be felt after a period of two to three years.

So do not be impressed when you hear a government (ANY government) shout and scream about safeguarding the rights of the working class. Who will safeguard the rights of the unemployed class, I wonder? By sustaining the wage rate at WR1, the people working get richer and the unemployed get poorer.

Have a nice "working" day!


2 comments:

  1. Dear Constantinos,

    I regret to see you 'apologising' for your backed by economic theory beliefs, or urge your readers to read your posts carefully.

    Anyone with half a mind can see that your blog addresses political issues (as any economic issue eventually is) but not politicised.

    As far as I am concern you should keep up the good work. If your views happen to coincide with what a political party might advocate at any given period of time so be it.

    If someone doesn't like what your write then they can turn their attention elsewhere.Your views are your views and if anyone doesn't like, then tough luck for them.

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  2. Thank you my friend for your words of encouragement. It is really a shame that there are still people who are anything but open minded and it is such behaviour that led our beloved country in the state it is in right now. It is indeed difficult to separate economics and politics as you very well put it, but I am optimistic that it can be done very successfully as long as we keep personal gains and petty behaviour aside.

    Once again thank you. It is refreshing to see that people like yourself are reading this blog.

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