2010/03/02

13. Comments on Krugman´s views of Spanish economy: Salaries are not to blame and should not diminish. Productivity should increase.

Source: Elaboration by Guisan(2009), from OECD National Accounts,  in EEDI Report Vol. 9-2.

This graph shows the evolution of labor costs in Spain, and show hat they are not the cause of the Spanish economic mess. The ratio labor cost/average productivity of labor  has increased in Spain in the last years, but not as a consequence of increases in labor cost but due to the diminution of productivity.

Krugman´s views: We do not agree with the Krugman´s recommendation of diminution of wages in Spain, although we agree with him that the Spanish economy is in a mess. This is a kind of mess related with lack of support to industry. In spite of that Spain economy could have a good evolution in the next years if the country gets a good economic policy. I 
Some links to Krugman articles and comments by readers are the following ones:
An interesting analysis of the higher levels of productiviy and rates of employment in the United States, in comparison with European Union, is presented in the article by Guisan and Cancelo(2006) in the journal AEID, which is free downloadable. The conclusion, in section 5 of the article, are the following ones:

"5. European labour policies: suggestions and conclusionsThe lower rates of employment and wages in EU in comparison with the USA are due to  lower levels of industrial and non-industrial real value-added per inhabitant. Wages are not to be blamed as the cause of unemployment in EU countries, but the lack of policies to foster industrial development, research, education and other variables which explain the higher levels of the USA in comparison in Europe. It is clear that economic policies in the USA are more focused, than in the whole of the European Union, to the increase of real Gdp per inhabitant and employment. The successful development of those policies in Europe should imply more dialogue between policy makers and the European society, including economics researchers. Unfortunately thee Euro-sclerosis in the bureaucracies of some EU institutions have led to increase the distance between political parties and society... More industrial and regional development, less taxes on labour, and more support to education and scientific research in all the EU countries are convenient to diminish unemployment and stagnation and to reach real convergence with the USA regarding the increase of real wages and rates of employment at the same time."

These recommendations are of particular interest for Spain because industrial development and investment per capita is lower than in more adavanced European countries. It should be desirable more opportunities for economics researchers, who have something to say related with these questions, to present their opinions in the newspapers and other communication media.