Economist Christopher Pissarides (Nicosia, Cyprus, 74 years old) In 2010, he was awarded the Nobel Prize in Economics along with Dale Mortensen and Peter Diamond for their contribution to how to match job supply and demand. Twelve years later, with a financial and health crisis and a war at work, it is appropriate to continue listening to the descriptions of an academic who did not hesitate to talk about flexibility in the labor market while justifying the state’s role in lending a helping hand. to those who benefit least from technological advances. The health crisis, and now the war in Ukraine, has had a profound effect on the way work is organised. Energy supply and inflation have also become a problem for central banks and governments around the world. Pissarides recently came to Madrid to discuss all these issues at the Energy Perspectives conferences for the Naturgy Foundation.
QUESTION. How do you explain Spain having one of the worst unemployment figures in the European Union?
REACTION. The faults of the Spanish institutional framework come from the 1980s and 1990s. What we have learned since then is that the institutional structure for negotiating wages and working conditions greatly influences the functioning of labor markets. We now know that a lot of flexibility is required for employees to progress: to be able to change jobs, move up, change positions within a company… Spain lacks the flexibility necessary for workers with individual talents to work. to go forward. Collective bargaining has outstripped flexibility, which explains the bad data.
Q. What reforms should be made to begin to fix the unemployment problem?
r. Major reforms have to do with increased flexibility, this has been pending in Spain for many years. Wage negotiations should be more flexible, I know this is highly politicized, but more freedom is needed so workers can negotiate their own compensation, rather than having these issues collectively controlled by the unions. From a contract standpoint, we also know that the best jobs are those with promotion potential, where you can be promoted with upgrades. If you have a strict contract above you, it is very difficult for you to move forward in the company. Flexibility is essential.
Q. Does this explain the high youth unemployment rates in Spain?
r. Yes, young people suffer the most in a labor market with little flexibility. They have a hard time finding their first permanent job and are unemployed in between, with temporary jobs…
Q. What do you think about the reform that took place in Spain and made it compulsory? companies to hire riders?
r. I think that’s true, but the good thing about this kind of digital economy is the great flexibility it offers and some employees want. The biggest problem is the benefits you lose by being autonomous, of course not having those advantages is a problem. But above all, what should be avoided is rigidity in the labor market.
Q. How have cities transformed due to the use of digital platforms?
r. Although these platforms have a greater impact in the countryside than in the city, as they connect previously isolated rural areas, they mean a big change for cities. Industrialization and the first factories supported urban development because services had to be brought closer to the workplace. On the other hand, digital platforms do not need this proximity, so what technology brings is ‘deurbanisation’. For the rural population, where there is only one store and one bar, digital companies offer great possibilities. Even in central London you can’t choose as many coffee brands as you can via digital apps! And it comes in a day!
Q. What has been the impact of the epidemic on the labor markets?
r. The pandemic has had a greater-than-expected impact on the labor market. Speeded up automation due to deadlocks. New technologies have been implemented and this will no longer disappear, although workers return to their offices. Remote work is the other great legacy of the pandemic. Remote meetings, lectures, etc. Now we have the technology to do that. 20% of employment will be telematics. In addition, employees and companies are more aware of occupational risks. Health at work has become more important. And sectors with unhealthy jobs will have a harder time finding workers.
Q. Could automation of employment lead to more inequality?
r. Automation increases inequality but does not increase unemployment. Governments must take measures to contain inequality. We have seen this in the United States and, to a lesser extent, the United Kingdom. They are less regulated economies, in which the inequality between high and low wages has grown enormously. Inequality is unacceptable in the United States. All the gains that technology has produced in recent years have benefited especially the top 5% of incomes. The lowest ones did not benefit at all.
Q. What is the recipe for tackling inequality?
r. The European Union has done better than the United States. Countries like Sweden, Norway or Denmark are an example to follow. A reasonable minimum wage should be enforced and quality social services should be funded, especially for low-income earners. This makes up for their lack of resources, but needs to be adequately funded, the government has to pay for it. This money comes from top income taxes. This is how wealth is distributed from higher-income people who benefit from automation and the advancement of technology.
“We may experience a small recession next year”
QUESTION. Do you think there will be a recession?
REACTION. No one knows for sure, the European Central Bank is waiting for one to happen. But it won’t be deep. There will be a small recession.
Q. So it won’t be as serious as the last one?
r. Nerd. Mistakes were made during the last financial crisis, but luckily we learned from them.
Q. With the pandemic and the war in Ukraine, do you think European institutions are outperforming the last major crisis?
r. I think so too. They did better. Better coordination between monetary and fiscal policies is still needed, but in the European Union this is difficult because monetary policy is in the hands of the ECB and fiscal policies are still controlled by the countries that make up the club. But against all odds, it has now responded better than it did during the last recession, and this time it performed better than before. When the next crisis comes, we will certainly do better than the present.
Q. What should we do with the large debts incurred as a result of the pandemic?
r. Pay them! In fact, inflation is good for paying off debt and reduces it. It will be easier to pay off your receivables. But you have to give it back.
Q. Do you think central banks are doing the right thing by raising interest rates?
r. Yes, it is inevitable. They have to raise interest rates and tighten monetary policy. However, I do not believe that the current inflation is solely due to monetary factors, especially to the increase in food and energy prices. Therefore, central banks must be very careful and not be too aggressive, but also check that the rise in wages does not unleash an inflationary spiral. They cannot stop inflation with monetary policy, but they have to lower their wage growth expectations. The unions will never recognize it, but according to the cost increase we are experiencing, a salary increase is impossible. Energy now costs twice as much, and wages cannot appreciate as much as the cost of living. If we cannot find an alternative energy source, this will send us into an endless price spiral. Unions don’t like it but I’m not saying it, every economics freshman knows it. You should try to lower prices, not increase salaries.
Q. What disruptions has the war in Ukraine brought to the global economy?
r. It has very serious consequences. The first we can point to is the increase in energy and food prices. However, I believe that one of the biggest setbacks brought by the conflict, which is more political than economic, is the division of Russia into blocs after its economic and political isolation. This causes many challenges in supply chains. China’s ambiguous position on the conflict doesn’t help either, people no longer trust it to the same extent to start a business. This war brought with it a kind of ‘deglobalisation’. Russia and China will likely become politically close. The most worrying thing would be to return to a bloc policy with the US and its allies on one side and China and its allies on the other. This is very worrying. Russia could choose another path and be more integrated into the Western economy, as it seemed to be in the 90s, but now that has changed. This trend is much more dangerous than rising energy prices.
Q. Are we returning to some kind of Cold War?
r. Nerd. We are not in that scenario, it has already happened. China’s role is much more relevant now than it was in the Cold War. Western countries have invested so much in China that we are now dependent on its economy, there was no such problem with Russia and therefore economic sanctions were applied. China’s role in international trade is much more important and cutting relations with them would be very worrying, let’s hope things continue as they have in the last 40 years.
Q. Do you think it is effective to limit energy prices, as was done in Spain?
r. This is a very complex thing to do, someone has to pay the real costs of the energy cost which is increasing rapidly. For example, if energy supply costs one hundred euros and the government says companies cannot charge more than 80 euros for it, who will make the difference? Someone has to pay for this. Such measures result in subsidization of those who have the most energy, those who use the most energy. Rather than giving money to the entire population, it is better to price the energy on the market and then support low-income families so they can pay their electricity bills.
Q. Should we limit the use of fossil fuels and encourage the use of renewable energy?
r. Yes this is a good idea. The use of renewable energy is essential, there are already commitments to make an ecological transition towards renewable energy sources and I hope this process will be accelerated. With the war in Ukraine, the European Union realized the importance of Russia’s energy dependence and renewable energy sources. We should also encourage public transport, and use electric, private cars less if possible.
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Source: Informacion
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