One of the key elements that will dictate the outcome in the inflation vs deflation debate will be employee wages. For those outside North America, it should be noted that wages really haven't grown much in the last decade (in contrast, wages have been growing fairly strong in most of the undeveloped and developing world—I'm not too sure about Europe.) This is one of the reasons inflation in America and Canada has been quite low even with big increases in commodity prices, healthcare costs, and so forth. I'm just bringing this up because it shows that there is already a default deflationary force. The real question is whether this outlook has changed more towards inflation or deflation.
Notwitstanding the strike by municipal workers in Toronto and the potential worker boycott of Ontario's liquor board (both of them likely to increase wages when resolved), the current climate is starting to exert a downward force on wages in Canada. The following story from The Globe & Mail points out the increasing use of work sharing:
When its tractor sales to Russia plunged this spring, Buhler Industries Inc. BUI-T faced three tough choices: fire 90 of its workers, shut down its tractor-making plant for four months, or put its affected staff on a three-day week.
It chose the latter. As of this month, 200 Winnipeg-based workers no longer work Mondays and Fridays. Under a federal program, they collect up to 55 per cent of their salary through employment insurance for the two days they're not working. It means a drop in pay - but they're keeping their jobs.
Speaking as a low-level worker, I favour job sharing. Instead of someone losing their job, at least they will have some income. It may also help businesses in avoiding the loss of skills learned by their employees over the years. Job-sharing is supposedly common in Europe but is rare in North America. America, in particular, has generally always laid off workers outright and job-sharing is not that common (note that job-sharing may be common for those going on maternity or paternity leaves, and the like, but I'm not talking about those special situations; I believe it was also a bit more popular during the Great Depression in America.) That's why this is big news in my eyes. This is just one story, and it's in Canada, but I have seen similar ones in the press recently.
Regardless of what one thinks of the tactic, sharing a job, or reducing the hours, or similar policies, exert a massive deflationary force. The decline in income is substantial and the worker is almost certain to curb expenditures, hence hurting consumer consumption and providing less taxes. So far work-sharing is limited so it remains to be seen if it gains popularity. Tags: Canada