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Correct me if I'm wrong but surely this stability in the real minimum wage represents a collapse in the value of the minimum wage compared to the average wage. Of course much of the increasing average wage is a result of growth in human capital while most jobs that pay minimum are unskilled and require little expertise. In this sense you would expect the wages for less educated workers to be kept down by competition from abroad. On the other hand even low-skilled work should receive higher renumeration because many jobs are impossible to export (pizza delivery, hair-dressing and simple warehouse work for example).

Whatever the reason for this collapse, it can surely be used to explain the lack of reaction to a higher minimum wage seen in the second chart - firms don't care much about a raise in the minimum wage because it has become such a small part of their expenses.

I wonder if one might get a look at the number of people (or better yet the share of the workforce) that have been paid minimum wages during these years?

Hugo:
That is a good observation re the stability of the real minimum. That thought had not occurred to me. Of course, it would be useful to know how much real average wages have also gone up over time to know how large the gap is. Re your other question, according to one study I came across, the share of employees working for minimum wage in Ontario has grown from 4.3 to 9 percent between 2003 and 2013 and about 40 percent of those workers are above age 25.
See http://www.wellesleyinstitute.com/wp-content/uploads/2013/10/Who-Makes-Minimum-Wage.pdf.

http://www.aei-ideas.org/2013/02/lets-review-the-adverse-effects-of-raising-the-minimum-wage-on-teenagers-when-it-increased-41-between-2007-and-2009/

Excess Teen Unemployment
02/16/13 - AEI Ideas by Mark Perry [edited]
=== ===
The minimum wage rose 41% in three stages between 2007 and 2009. This had a disastrous effect on teenagers. The jobless rate for ages 16-19 increased from about 16% to more than 26% (10 percentage points). The overall US jobless rate also increased from about 5% to 10%.

The graph attempts to isolate the effect on teenagers by plotting “excess teen unemployment" the difference between the teenage and overall jobless rates.
=== ===

See the graph at the link. Excess teen unemployment closely traced increases in the minimum wage. Teens are a measurable segment as part of all people of low experience, knowledge, and productivity.

Nearly all economic models predict that the higher minimum wage reduces teenage employment, even beyond what you would expect in a recession

WSJ: "Studies confirm that when teens work during summer months or after school they have higher lifetime earnings than those who don’t work. Raising the minimum wage may inadvertently reduce lifetime earnings."

Defenders of the minimum wage say it accomplishes a social good without much harm. They are wrong. The worst effect applies to people of low ability who may never earn more. They are thrown out of work or receive fewer non-wage benefits and accomodations, until inflation lowers the real burden of the minimum wage.

Proposals to index the minimum wage to inflation would permanently unemploy people of low ability or who now benefit from non-wage accomodations which lower their productivity.

We should oppose the minimum wage on behalf of the low skilled, whether or not they are later able to learn more and advance in productivity.

"Whatever the reason for this collapse, it can surely be used to explain the lack of reaction to a higher minimum wage seen in the second chart - firms don't care much about a raise in the minimum wage because it has become such a small part of their expenses."

I'm not sure we can say from the second chart, without further analysis, that there's a lack of reaction to a higher minimum wage in teen unemployment. Just eyeballing the chart, there does appear to be at least apparent correlation between periods of above average minimum wages (see the early 1990s amd the late 2000s) and high youth unemployment and conversely between periods of low minimum wages and lower youth unemployment (late 1990's, early 2000's). Obviously, though, there are a ton of other confounding factors in there (recessions, inflationary expecations, other government policies, etc.) which make the eyeball test not particularly meaningful.

The other observation is that the youth unemployment rate probably isn't where I'd look to see the impact of a minimum wage increase, but rather at the you employment rate. A 15 year-old who can't find a job can readily drop out of the workforce (and wouldn't be counted as unemployed), but a 15 year-old who loses a job will show up in the employment rate figures.

It is interesting that minimum wage appears to be a counter-cyclical policy, going up in real terms during the recession of the early 90s and the late 2000's. I can't think of a dumber policy than responding to a recession by mandating higher wages, but I can see the political appeal, it allows governments to claim they're doing something for the poor, at no cost to themselves (but perhaps at considerable cost to the unemployed).

"but a 15 year-old who loses a job will show up in the employment rate figures."
No.Only if he keeps looking,not because he lost it.

The correlation between the real minimum wage and unemployment may be nothing more than normal business cycle fluctuations as both series would be relatively pro-cyclical. Recessions are deflationary (or at least, disinflationary) meaning that the real minimum wage, relatively speaking, would rise at the same times as unemployment rises.

Jacques, what are you talking about? The employment rate is youth employment over the youth population, not the youth work force. My hypothetical 15 year old won't turn up in the UNEMPLOYMENT rate if he stops looking for work, but he will turn up in the employment rate (which is why it's a better way of looking at the impact of the minimum wage on employment).

Livio, your timing is excellent, I see from today's Globe that statscan just released a study to the effect that the real minimum wage hasn't increased in four decades. Erin Weir is quoted lamenting this fact. My question is why are we surprised by this or do we think this a bad thing? Presumably,for a minimum wage to not be economically disastrous, it has to bear at least some relationship to the productivity of Canada's least skilled workers. Is there any reason to believe that the productivity of Canada's least skilled employees has increased over that period in a way that would translate into real wage growth?

Bob: sorry. My old eyes read too fast...

1. like Hugo Andre,

I would be also interested in a plot of minimum wage vs median and/or average wage

2. Bob Smith, employment numbers can be as misleading as unemployment numbers, IF the level of education has changed significantly in the group 15 - 24 year old.

Bob: Well, timing is everything. Sometimes I get lucky.
Genauer & Hugo: Have updated the post with some information on the ratio of minimum wages to average earnings.
Genauer: Interesting point re the education level. There is a higher rate of post-secondary education in 15-24 year olds since the 1970s.

Genaaur,

I'm not sure I get your comment. I agree that an increase in post-secondary enrollment overtime might result in a long-term decline in the youth employment rate. But a change in the minimum wage is a short-term policy change, if it has an impact, it's likely to be an immediate one, one that's not likely to be swamped by a long-term secular change in post-secondary education (although that's probably another variable you'd have to control for).

Jacques,

I hear you.

FYI: Incidentally, just discovered the new Stats Can minimum wage report on their website has a graph of the minimum wage to average wage ratio going back to 1975.

Bob,

in most (Western) countries the enlistment in post-secondary education has gone significantly up, at least until around 1990. That gives you lover employment numbers for 15-24 yo for something, which is actually a good thing, as long as it is not overdone.

In Germany, and I believe the US too, this process acutally saturated around 1980, around 25 - 30%.

Starting to confuse you ..... : - ) , one can play this also more complicated. German speaking countries (DE, AT, CH, and neighbors NL, DK, strong CZ, lesser PL) have well celebrated apprenticeship models, which are counted differently towards that number, based on minute differences and changes.

To the tune that this can easily screw up the whole interpretation

Maybe Jacques (hello !) can
a) translate this better into Canadian language, and
b) judge, whether something similar might have happened in Canada : - )

To introduce a different point of view,

many pay scale comparisons give you a simple exponential dependence on the percentile of the distribution.

Data for hundreds of years for UK, US, DE, I even have something for ancient Rome at the time of Augustus.

with the 10th at half of the MEDIAN, and the 90th at double the MEDIAN.

What happens in the lowest 10 percent is mostly not well documented.

What happens in the upper 10 percent is often not well documented, dependent on interpretation of capital gains, and a lot more. And subject to massively subject interpretation, see the Piketty thing.

Data source worth to mention: http://www.epi.org/ more to the left, but what I have seen honest

So you write Wage W of percentile P with Median M

W = M* exp( 2 * P - 1 )

and the 2 maybe only a 1.8, dependent , how you count the non-cash, like health insurance, TV, or bread and circus in former times .... : - )

in this picture the AVERAGE is about 1.15 - 1.25 of the MEDIAN dependent on some more detail in the upper 10%, and it makes minimum divided by average greater than 0.45 high enough to cause unemployment.

Very terse wording, I know. But understandable ?

And such things should not kick in instantenously, but more drawn with a time delay of the order of 2-3 years, on the second kick, like you can see in the unemployment numbers.

Genauer,

I get that, but you'd expect the sort of short term spikes in the real minimum wage shown in Livio's graph to have a short-term impact on employment, which should stick out from the long-term trend in the employment rate caused by changing participation rates. In any event, if someone where to take up Livio's challenge to look at the impact of the real minimum wage on youth employment in Canada, they would presumably control for post-secondary enrolment.

Bob,

thank you for bringing me back from Augustus to closer to Livios post in the here and now : - )

I say, you see now just a repeat of what happened early 2009


I am taking a significant interest in this, because we introduce a national minimum wage in Germany just right now, and Canada is actually one of the most sane countries to compare to : - )

We just beat you again at a very tiny margin for most popular country in the world (BBC)

In reply to Bob Smith

The late 2000s upsurge is easily explained by the great recession which surely swamps any other effects but I honestly don't see anything even indicating a correlation during the 90's.

One thing I want to say about raising the minimum wage during the most recent recession though. There have been a lot of studies showing that the effect of the minimum wage is small or nonexistent. In other words employers are willing to increase bottom wages a bit rather than fire people. In that sense it increases aggregate demand which is something that has been sorely needed during this crisis.

Thanks a bundle for that new chart, Professor! Precisely what I was looking for. Real wages don't seem to have grown much in real terms during this period according to the data. Over the last 23 years a MW increase of just 30-35% in total has significantly increased the MW to average wage ratio. Surely that can't be right?

my take would be, that raising the MW from 0.4 avg to 0.46 increased long term the unemployment rate by 2% in the 15 - 24 yo group, and probably by 1% in some groups (25 -30, 60 - end) above.

That would be about ( 2% * 9 years + 1% * 10 years + 0% * x years ) / 40 years = 0.7% overall rough guesstimate, ca 0.3 % GDP loss

The social benefit is, that ca 10 % of the population, where this is especially important, have a ca 15% higher income.

Plotting the ratio vs the unemployment rate, smoothed over 1 year for proper seasonal adjustment, since ca 2003 would be interesting.

Genauer
If you want to try and find a statistical correlation you should probably exclude the last few years as the big crisis has led to a large increase in youth unemployment for nearly all western countries, regardless of what they did to their MW. What happens to your analysis if we remove those years?

Another issue is that if we use your methodology for the years 1976-1991 (that are included in the first two charts but not in the ratio) we get the result that youth unemployment has increased at the same time as the MW became a lot smaller in real terms. Perhaps we should conclude that a higher minimum wage leads to less unemployment?

Of course a much more realistic way of interpreting these numbers is to say that the MW has a much smaller effect on youth unemployment than some other things. A vector autoregression is needed.

"There have been a lot of studies showing that the effect of the minimum wage is small or nonexistent."

I'm familiar with some of that literature (although, where there's no employment effect, there are often other effects such as reduced benefits or higher work pace), but it's decidedly mixed and studies go both ways.

In any event, let's assume you're right on the impact of the minium wage on employment. How does increasing the minimum wage increase aggregate demand? It either involves a shift of income from one set of consumers (owners of capital) to another set of consumers (labour) or a shift of real income from all consumers to minimum wage workers through higher prices (depending on whether you think employers bear the cost of higher minimum wage or they pass it on to their customers). It's a redistributive policy, but it's not apriori clear that it results in increased aggregate demand.

Hugo,

The years before 1991 have the problem (post-secondary fractions, and others) I stated in my first post, and there is not enough short term MW dynamic without the recent years.

Youth and general unemployment in Germany has come down actually in the years since 2005, and is now at record lows, like 3% youth in the south in good months and 5% general.

Point is, here n Germany any Analysis of the impact of the present introduction of the MW is overlayed by a ton of other issues, like freedom of movement for Bulgarians and Romanians, which by itself is also a good thing, especially for them, but screws up, to a certain degree, certain labor relationshipos here around.

I doubt that VAR would produce anything beyond more confusion.

I believe that my last analysis above describes what happens actually, semiquantitatively, but I immediately admit, that others can dispute this. It goes along similar analysis for east/west germany comparisons with still significant differences of the average wages, but those have the same methodological difficulties.

With Ordnungspolitik = "social market economy" ruling supreme in German economics we opposed the instrument minimum wage until recently. But in the wider European context we found it necessary to do it now, sigh : - )

It is 8.5 Euro/h, corresponding to 11 Dollar with a conversion factor of 1.3, (1.25 to be argued "fair value" and 1.35 present FX rate)

But maybe Livio puts the topic on reschedule in a year or so, maybe in concert with the other provinces and their MW updates?

You raise some good points and I really should've clarified my reasoning. It's nice to have a discussion with someone who knows a bit about the issue.

What I mean is that the deficiency in aggregate demand in the last recession clearly wasn't caused by a lack of money overall. It was caused by a large increase in the debt burden for a lot of people. These people then began to consume less while working to pay of their debts. In this sense switching income from capital owners to workers (workers being the ones that consume less) means they will be able to pay off their debts quicker and then increase consumption to normal levels once again.

It is also true that even in good times, those in the lower income brackets spend a larger share of their income than people in high income brackets who tend to have large and growing savings. Because the latter can dig into their savings when times are bad while the former can not, this tendency -probably- becomes even stronger during a recession. Acting like Robin Hood therefore increases aggregate demand.

My apologies, the above comment was a reply to Bob Smith but genauer managed to get his post in between.


In reply to genauer:

Germany is the reason why I wrote "-nearly- all western countries". Germany has been a special case during the crisis. According to eurostat EU-wide youth unemployment went from 15 to 21 percent in the years 2007-09. In the UK it went from 14 to 20 percent, in my native Sweden from 19 to 26 percent, in the US 10.5 to 17.5 percent etc. Germany avoided this because of it's very particular economic structure and perhaps also due to it's demographic decline. In any case it's hardly relevant to Canada.

Adding the last few years even though they're not applicable because that's the only way to find a negative effect from MW doesn't sound like a good idea.

I wish you good luck in working out a proper MW and implementing it in Germany but then I'm sure it'll be done competently (Germans are usually good at that sort of thing).

I would also like to second your suggestion to Professor Di Matteo for a comparison between the various Canadian provinces.

Genauer & Hugo:
Well thank you for that suggestion!

"These people then began to consume less while working to pay of their debts. In this sense switching income from capital owners to workers (workers being the ones that consume less) means they will be able to pay off their debts quicker and then increase consumption to normal levels once again.

It is also true that even in good times, those in the lower income brackets spend a larger share of their income than people in high income brackets who tend to have large and growing savings."

You're making some heroic assumptions there. First, do minimum wage workers have more significant debts than "owners of capital"? One of the biggest problem facing the poor is precisely a lack of access to credit. Moreover, to the extent that minumum wage workers are, say, high school age kids (not an insubstantial portion), are they likely to be burdened with debt). Frankly, the owner of the McDonalds franchise or the neighbourhood restaurant who employs minimum wage workers is more likely to be burdened with heavy debts than his employees.

Second, paying off debt is the same as saving, so if the minimum wage earner is repaying their debt, how does that increase aggregate demand (at least in the short run? How does it increasing aggragate demand more than owner of capital increasing his savings?

Third, I take your point about the maginal propensity to save of the poor, but is that representative of minimum wage workers? Many of the studies of minimum wage workers are quick to point out that they're actually middle-class teenages/young adults. To the extent a high school student is working to save for his post-secondary educaiton, or a university student working to pay down/minimize their student loan (i.e., to reduce his or her disssavings), they'd probably have a higher than average propensity to save.

Fourth, are you certain that the minimum wage workers are significantly poorer than the poeple who bear the cost of higher minimum wages (either employers or consumers). That's an implicit assumption in all these discussion (often reflecting the ideological assumptions of many proponents of higher minimum wages). To the extent that the cost of higher minimum wages are borne by consumers, that's probably questionable (i.e., if Walmart has to pay its employees more, and the cost is borne by customers, is that cost borne by the rich or by the poor - who shops at Walmart?) Moreover, the notion that employers are rich, again, is something of an ideological prejudice. Because employers only get their profit (i.e., not fixed wages or a salary), in a recession, they're the ones whose income declines first (they might even have a loss). In this context, particularly in the case of small business owners, who might not have large cash or credit reserves to weather a recession, I could see their consumption falling more sharply than that of their employees.

Germany (and me representing it here, kind of) certainly does not lack self confidence, especially not in this moment (Brazil 7:1 : - ) and many more things (employment, CA surplus, global popularity, whatever)

And Canada is one of the very few countries we are looking at, what we can learn from.

Livio de Matteo is consistently asking the hard, important questions, the strategic, systematic, structural,

and not the short term ISLM gimmickry of Nick Rowe and Krugtrons, which attract a lot more flimflam : - )


- Having served that very affordable broadside : - ) and
- mentioning, that I will come in some comment tomorrow down probably much closer to Bob

- looking at the OECD Annex 10 Table "output gap",
- especially with resepct to the comparison of Canada and Germany

I see it actually as very valid to make the additional plot I suggested above (ration MW/avg vs Unemployment, 2003 to present, quarterly or semi yearly data, yearly smoothed)

In reply to Bob Smith.

Let me answer answer each of your points in turn. I won't refute your accusations of ideological bias; you'll have to figure out that part for yourself.

1. Yes a big problem facing the poor is indeed the lack of access to credit but an important part of the buildup to the crisis was that many people received loans who previously would not have be able to do so at reasonable terms. That is what much of the subprime debacle was about. Eventually it became clear that these people had no way to pay back the loans they had taken.

2. As I explained in my previous comment a higher wage means they would be able to get their loans back to an acceptable level much sooner at which point much of the downward pressure on AD that caused the crisis would go away. As you say, the immediate effect immediate(very short term) effect would be smaller but since the crisis kept going on for such a long time, even an AD boost that takes a year until it starts working is a good thing.

3. Professor Di Matteo helpfully posted a research paper entitled "Who is working for minimum wage in Ontario". The study results are that racialized employees are heavily over-represented and that 40% of those paid MW are above 25 years of age. Certainly some of the people on MW will be high schoolers but it hardly looks like they're a dominant part. The 40% above 25 years of age are certainly not middle class.

Either way, it seems like a strange claim that working high schoolers would generally be doing so in order to save for college. The people I've known who worked during high school spent a large share of their income, usually because their parents wouldn't/couldn't give them much (though I admit it's very unscientific to base an argument like this on personal experience).

For college students the consumption smoothing argument should apply whereby they consume above their means now because they know that education will make their future incomes bigger.

4. Why do you think people take jobs paying Minimum wage? They are not usually the kind of jobs people take because they enjoy them. I don't think it's too much of a stretch to say that people who work for low pay do so because they really need the money and because they lack other options. That suggests their propensity to spend is high. As for profits, yes they did fall initally but soon recovered and (at least in the US) they have stayed at very high levels during the last few years.

There is one more reason why a higher MW leads to more AD that I have neglected to mention. Higher wages leads to a higher price level which increases AD because it reduces the real value of debt.

Let's deal with a couple of those comments:

"Professor Di Matteo helpfully posted a research paper entitled "Who is working for minimum wage in Ontario". The study results are that racialized employees are heavily over-represented and that 40% of those paid MW are above 25 years of age. Certainly some of the people on MW will be high schoolers but it hardly looks like they're a dominant part. The 40% above 25 years of age are certainly not middle class."

So 60% of the labour force working for minimum wage are people under age 25. People under age 25 make up less than 15% of the total labour force (an an even smaller portion of the population). So let's just agree that my statement that most of the minimum wage labour force are teenagers and young adults is correct, and that the profile of minimum wage earners looks very different from that of the poor.

As for the proposition that many - most - people working for minimum wage aren't poor, I give you WCI's own Stephen Gordon for the proposition that 80% of low wage earners in Ontario don't live in poor households (http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/11/more-on-the-ineffectiveness-of-minimum-wages-as-an-antipoverty-measure.html) which is backed up by similar research in the US (http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/02/even-more-on-the-ineffectiveness-of-minimum-wages-as-an-antipoverty-measure.html). When I say that the proposition that minimum wage earners are poor is a ideological belief not a fact, it's backed up by research like this.

And it's easy to think about why this might be. Apart from young people (many of whom are living at home, therefore despite their low income are not poor in any meaningful sense of the word), minimum wage earners also disproportionately include woman, many of whom are secondary wage earners, and increasingly, retired people who are supplementing their pension incomes/retirement savings. For these groups, hourly wage is not a good measure of their household income (in the case of woman) and actual income (in the case of retirees, as they may have other sources of income - investments, pensions, etc.). And keep in mind that many minimum wage jobs are in the restaurant sector where wages are a weak measure of income (i.e., tips).

"Why do you think people take jobs paying Minimum wage? They are not usually the kind of jobs people take because they enjoy them.I don't think it's too much of a stretch to say that people who work for low pay do so because they really need the money and because they lack other options."

Clearly in light of the articles Stephen cites, it's a stretch to say that people who work for low pay do so because they really need the money. I think you'd be surprised as to why people work minimum wage jobs. For many people a job, any job, is enriching. It gives them a sense of worth, social interaction, and keeps their minds sharp. Minimum wage jobs often offer a degree of flexibility in terms of work hours (i.e., part-time, or only a few days a week), entail modest responsibility or stress, and can be obtained by people who have either limited work experience or who have been out of the workforce for a while. For a stay-at-home mother whose kids are at school or a retiree, working a few hours a week at the Walmart could be a welcome change from the rest of their lives. For a teenager, it's the jobs that are available to them.

OK fine, I concede. Stephen Gordon's posts are rather convincing and your reasoning appears to be sound. People on minimum wage generally aren't among the poorest in society.

For what it's worth I do still think there's good reason to believe a MW raise would benefit AD however. In a sense your observations support this since a teenager or young adult from the middle class will expect a much larger salary when he is older. The life-cycle/permanent income hypotheses strongly suggests that these young people will spend a large share of their income. I have yet to encounter anyone below 25 years of age who has by him/herself accumulated any significant savings.

Second there's the inflation thing. As you pointed out, higher wages will feed through to higher prices both of which cause an increase in the price level - which leads to higher AD by reducing the real debt burden.

Hugo,

I think I go a lot more with Andrew and Bob above.

We have to clearly spell out:

1. Some people are simply not worth a certain wage, not because of disabilities, but because they are slow, sloppy, and lack a certain work attitude. I know such people, and here in Germany some 5 - 10% are convinced, that they should be entitled to some "unconditional basic income", means living of the work of other people, without working (Pirate party). And these people will not get or lose a job, if the MW is too high. These people become effectively unemployable, and then will live of government payments, at least here around. This is not social justice.

2. Quite a number of jobs do not generate value of the size of the Minimum wage, and would be lost. A slow going cashier, a small shop operated to a large degree for fun, and not for profit optimizing.

Just one example, the checkin to the Sauna of my dorm (long time ago). A 10-year old could do it, > 80 % of the time you could use for learning for exams or drinking beer with your friends in the pub it was located. For a job with a nowadays 5 $ wage there was a waiting list of longer than a year.

Minimum wage destroys jobs, and therefore employment / GDP. And the acceptable amount you have to way against some other social benefit.

3. Canada is, at least since 2012, not in a situation requiring any stimulus.

4. Stoking inflation, beyond the 2.0% target is evil, and not good. It steals purchasing power from those who saved trusting in the target. And such broken promises also cause social costs, misallocation of capital.

5. Young people do not save, beyond short term targets, because it does not make sense. With their low income, using it gives them more utility than having a little more on top of a lot more a few dozen years later


6. Looking at all the numbers, in Canada and Germany, I would not raise the minimum wage above 0.45 times average, and actually target more 0.43

"I have yet to encounter anyone below 25 years of age who has by him/herself accumulated any significant savings."

True, but I suspect many of them have significant debts (e.g., student loans). To the extent higher income result in reduced debt burdens, that's a form of savings (since debt=dissavings). If the effect of higher minimum wage is that a university student borrows less to fund his or her education, their consumption is unaffected.

The chart of youth unemployment is interesting - match it up with the immigration for the same period - prior to 1990,it fluctuated and went quite low, but since 1990, immigration has been high and not varied with the unemployment rate, and youth unemployment has also been high...

Quote "Stoking inflation, beyond the 2.0% target is evil, and not good. It steals purchasing power from those who saved trusting in the target. And such broken promises also cause social costs, misallocation of capital."

Frankly, most people who saved are lucky to have savings - far better off than the unemployed who have to go into debt or sell off assets because of a policy that fights inflation by tightening the money supply to create a recession.

An unemployment rate above 6% is evil.

The B of C target is 1 to 3%, which is too low but when unemployment is high, there is ample excuse to let inflation at least go near the 3% level, unlike our current policy in which the real range is between 1% and 2%, and we never see anything over 2% except for the odd anomaly.

btg,


if you unemployment rates at US like 6%, cut your benefits to the US level.

The fallacy of the NAIRU (Not accelerating inflation required unemployment) concept was shown in the 1970ties. Stoking inflation does not help against unemployment, beyond a one-year straw fire.

The (un)generousity of the benefits, together with long term structural policies and demographics determine your unemployment rates.


The EuroArea has a inflation target only policy, and is enshrined in the treaties, "no bail out, no money printing".

And how we feel about it, is articulated like this:

http://www.telegraph.co.uk/finance/financialcrisis/10625484/German-court-parks-tank-on-ECB-lawn-kills-OMT-bond-rescue.html

or, for Americans: inflation? .... from my cold, dead hands !

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