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The Imprudence of Labour Market Flexibilization in a Fiscally Austere World


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  • Jeronim Capaldo and Alex Izurieta
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    This paper assesses the effects of combining fiscal austerity with flexibilization policies aimed at reducing labour costs and increasing competitiveness. Core to our analysis is a global perspective where the aggregation problem is fully taken into account. We derive a stylized macroeconomic framework of distributive and demand dynamics. We show that even in export-led regimes, after considering global feedbacks, flexibilization policies do not lead to higher income and employment. Rather, the end result is contractionary. Over time, the world economy is essentially wage-led and responds positively to coordinated Keynesian stimuli. Length: 22 pages

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    Bibliographic Info

    Paper provided by United Nations, Department of Economics and Social Affairs in its series Working Papers with number 112.

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    Date of creation: Apr 2012
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    Handle: RePEc:une:wpaper:112

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    Keywords: labour market flexibilization; fiscal austerity; international coordination; demand; distribution; Keynesian macroeconomics; aggregation problem; race to the bottom; wage-led; export-led;

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