"Economic volatility, inflation-output trade-off variability and the challenges to social democratic egalitarianism in Europe: Informed speculation and preliminary evidence"

Citation data:

Page: 28

Publication Year:
2001
Usage 234
Downloads 234
Repository URL:
http://aei.pitt.edu/id/eprint/2201
Author(s):
Robin. Varghese
conference paper description
This paper examines a challenge to instituting more egalitarian incomes policies in Europe posed by economic uncertainty and the consequent volatility in economic outcomes, specifically the variance in the profit rate of firms. Rising variance in the profit rate increases costs of equality in the form of foregone proportion of the surplus generated as well as threatening a larger number of firms with bankruptcy. Unlike appeals to specialization resulting from open trade, this explanation centers on dilemmas that can affect firms also at the sector level. Rising variance in firm profit rates, and thus wage dispersion, are tied to shifts in demand management and monetary policy that result in changes in the sacrifice ratio or the output-employment loss for disinflation. The sources of shifts in the sacrifice ratio, in so much as they rest in conservative monetary policy and increased capital mobility, imply different consequences for egalitarianism ... [e]vidence from the recent experience of income distribution and shifts in macroeconomic policy in France suggests [that] increases in the profit variance stemming from changes in macroeconomic policy towards a more conservative stance do negatively affect the degree of equality of wages. It concludes with speculation about the consequences of European monetary policy for the project of equality and the pressures for reform that may be generated by the European Central Banks conservative monetary stance.