Austerity in Europe is working.
Working, that is, to the benefit of employers—because many people are not working, and workers in both the private and public sectors are being squeezed.
New data from Société Générale’s Cross Asset Research/Economics group (as presented by FT Alphaville) indicate that unit labour costs—basically, wages and productivity—have been falling quite rapidly in southern Europe (especially Greece, Spain, and Portugal) and Ireland.
SocGen’s Michel Martinez writes that there are outright wage declines in Greece while in the other peripherals, labour productivity (as measured by ULC) is outpacing wage gains. Hence:
This suggests that wage growth has come in line with sustainable productivity gains. The key conclusion is that erosion of ULC imbalances does not necessarily need to take a decade.
So, yes, austerity is working—and workers are the ones who are losing out.
P.S. I refer here to the effects of austerity, the combination of economic depression, unemployment, and cutting government programs that leads to declines in unit labor costs based on growing productivity and stagnant or declining wages. The euphemisms invoked in mainstream economic and political circles are “internal devaluation” and “labor cost rebalancing.”
