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April 18, 2012

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Paolo Siciliani

In the end, capitalists will lose too, as shown by the massive accumulation of cash in the non-financial corporate sector. This is obviously in response to the depressed aggregate demand due to squeezed household incomes - and in the absence of an export-driven rebalancing, which will hardly materialise in the future given that everyone seem keen to become (or maintain their status of) surplus countries - incidentally, following the leading example of the UK.

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Another possibility is that labour hoarding, and the consequent fall in real wages to fund this, is a strategy that for now suits both capitalists and incumbent workers, particularly middle-income workers in white-collar jobs: the aristocracy of the squeezed middle.

There may be a growing realisation that recessions accelerate job polarisation and do most damage at this middle level. With the plan B of a job in the public sector no longer available, and with low interest rates keeping existing mortagages affordable, falling real wages may be seen as temporarily acceptable to many workers in the private sector.

Equally, low productivity may be temporarily acceptable to many capitalists if it is funded out of wages (and avoided future recruitment costs), and if there is a belief that recovery is imminent.

The short-term losers are the young, as incumbents aren't freeing up vacancies. The medium-term losers will be the incumbent workers. Once recovery starts, and assuming credit is available once more, firms will look to boost productivity relative to market entrants by automating many of those mid-level jobs.

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