Greek Endgame by Christodoulakis Nicos;

Author:Christodoulakis, Nicos;
Language: eng
Format: epub
Publisher: Rowman & Littlefield Publishers

Figure 8.1 Hourly Wage Rates in Argentina, in Purchasing Power Terms. Alternative evaluations based on constant 2012 peso or 2012 US dollar. Valuation is roughly the same over 1992–2001 due to the currency parity. Source: http://sedlac.econo.unlp.edu.ar/eng/statistics-detalle.php?idE=38. CPI index from IMF WEO Database. Own calculations.

This is why an objective comparison can only be made if the real wage is calculated in dollar terms, thus revealing its purchasing power in international terms. The picture that emerges with the use of this method is similar to the calculation previously obtained for the decade 1992–2001 as a result of the then prevailing fixed exchange rate parity. But it is radically different in regard to the next decade. In 2002, real wages fell by −70%, reflecting the rapid devaluation of the peso and, despite their gradual recovery, in 2012 still remained −14% below the average during the stabilization period.

A comment is due here about Greece. For comparison purposes, consider that the Memorandum led to a wage reduction of −23%, much more moderate than the income collapse that took place in Argentina in 2002–2012. Given that the internal devaluation sparked such strong protest from trade unions, it is difficult for anyone to argue that the answer to the current recession lies in a regime that will cause an even worse, and much more prolonged, deterioration of real wages.

8.2.2. Inequalities

When a disaster strikes, its consequences are asymmetrical, and the inequality between the rich and poor becomes worse. The drop in purchasing power did not hit all social classes the same. As is usually the case with economic upheavals, low-income earners are less likely to succeed in defending their purchasing power, while the better-off safeguard themselves against risks by dispersing their portfolios in different currencies and investments. This is exactly what happened in interwar Greece and modern Argentina.

The course of inequalities following the devaluation has been the subject of many analyses. A recent research report by the World Bank presents a systematic study of developments in income inequalities in Argentina: The facts presented in the study show that the well-known Gini coefficient of inequality7 increased from 0.50 in 2000 to 0.54 in 2002, and subsequently fell to 0.44 in 2010 owing to the growth of employment.8 On the basis of these facts, the report concludes that inequality was reduced after the crisis. But this is just an artefact highly sensitive to the definition of the sample. The specific result was obtained simply as the authors conveniently included the collapse year 2002 in the period of exchange rate stability—a clearly arbitrary choice. If 2002 is included—as is the reasonable thing to do—in the post-peg devaluation period, then, the picture changes completely. According to the same data, the average inequality for the period 2002–2010 is almost the same with that for the period 1992–2001. Obviously, there is absolutely no factual base to celebrate any meaningful reduction in inequality.

To avoid time selection sensitivity, another approach that employs the ratio of the income of the richer 10% to the income of the poorer 10% is adopted in each particular year.

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