Sunday, August 24, 2008

US and Europe: Different labor markets, different inflation prospects

Following this article I posted earlier, WSJ explains why the US and Europe are facing different prospects on inflation: there will be no wage-price spiral in the US. This is due to the different labor market structure of the two major economies.

[wage gap]



maynardGKeynes said...

Regime changes occur rather rarely in labor markets, but when they do occur, they do so very quickly.(Recall the aftermath of the Air Traffic Controllers strike in the 1980s.) If one or two unions in labor-strapped industries win generous new contracts, a contagion effect could easily follow. Note the militant stance of the Boeing union, which has the upper hand in the upcoming negotiations insofar as it is facing a highly profitable company that is way behind on 787 orders, and which can ill afford a long strike without losing market share to Airbus. After just a few of these settlements, assuming they occur, the idea would get around rather quickly that labor has considerable latent power to assert in the current economic climate of rising prices and hostility to globalism. If that happens, the difference between the US and Europe would be far less than it appear to be today. It would also be highly inflationary.