Wednesday, 8 July 2015

Guess which EZ country awarded itself big pay increases 2000-2010?

Pay increases in that decade were as follows.

I just took those six countries. So it’s just possible another EZ country awarded itself bigger pay increases then the Greeks. But certainly the two countries with the biggest pay increases in the above sample, Greece and Ireland were two of the countries in trouble over the last five years or so.

Figures are from this OECD source. Figures are from the “current prices” rather than “constant prices” rows. Greece actually joined the EZ in 2001 rather than 2000. However, the pay increase there between those two years was nothing dramatic, so that won’t have rendered the above “inter-country” comparison invalid.

Awarding yourself a big pay increase is OK if you have your own currency and can devalue it. But if you’re in a common currency area and do that, then you’re up shit creek without a paddle, unless you’ve achieved productivity or efficiency improvements which justify the pay increases.

Possibly Germany could be criticised for adopting too much of a deflationary / hair shirt approach. That point has SOME VALIDITY in that inflation in Germany in that decade averaged about 1.5% which is a bit below the 2% target. In contrast, Greece allowed inflation to run at about 3.3% in that decade. So Greece is mainly to blame there.

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