The imprudence of labour market flexibilization in a fiscally austere world

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.
Problems with competitiveness-led, export-driven growth -- The quest for employment growth in analytical terms -- Dynamics of production, distribution and price formation -- Over time, the global economy becomes wage-led -- Revisiting globally consistent distributive and demand dynamics when economies switch to increasing-returns-to-scale (IRS) technologies -- Concluding remarks: Employment generation by internationally coordinated demand policies.

22 p. : graphs

Includes bibliographical references (p. 20-22).