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Inequality and InstabilityA Study of the World Economy Just Before the Great Crisis$
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James K. Galbraith

Print publication date: 2012

Print ISBN-13: 9780199855650

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:osobl/9780199855650.001.0001

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European Wages and the Flexibility Thesis

European Wages and the Flexibility Thesis

(p.198) Chapter 9 European Wages and the Flexibility Thesis
Inequality and Instability

James K. Galbraith

Oxford University Press

This chapter discusses European wages and assesses wage flexibility across Europe. It focuses on how much wage flexibility exists, particularly, to what degree relative wages are capable of changing over time. This measurement is important as the rigidity of wages is a factor of the ability or inability of the country or region to respond to developing new technologies and to different labor demands. The chapter notes that there are substantial systematic adjustments in European relative wages between nations over time. Furthermore, it is the movement of macroeconomic variables such as investment, consumption, and effective tax rates which account for most of the variations in relative wage rates. Hence, unemployment in European countries is not caused by a rigid wage structure such as wages failing to drop lower, nor can it be solved by policies that tend to adjust relative wage rates.

Keywords:   wage flexibility, relative wages, rigid wage structure, systematic adjustments, European relative wages

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