Sovereign Debt Payments Weigh on Euro Zone - WSJ.com

Sovereign Debt Payments Weigh on Euro Zone - WSJ.com

Question (re: deferred retirement):


Your idea is plausible if there were enough jobs for everyone including those who are entering the job market - especially those entering the job market. As it is, the US as well as Europe have not created enough jobs for everyone to be employed. If there aren't enough jobs then what do you do?

From what I read, and the trend employment is following in the USA and Europe, it would make sense in a perfect world to lower the age of retirement and get more young people in the job market - but that is in a perfect world.

Answer:

Have you ever come across the concept of "economic utility"?

It basically says we might substitute chicken for steak (or visa-versa) if the price or our desire for either product changed.

As such, there might be lots of work for say someone paid $100 a day. But, if it costs the employer $500, it makes sense that a lot of that work would be too expensive. (Read the burden of government mandated costs to pay for social entitlements - average multiplier 3-5x currently in US.)

Likewise, someone might be willing to work for $100 a day, but if they only get to keep $50, then its a different story.

So, you are right we have a mismatch in jobs and people willing to work; but, the problem is compounded by the government mandated costs that distort the relationship between the cost of labor and the income to the employee.

Since the basic equation:

Sales Price/Production Cost = cost of labor + cost of capital + cost of materials

You can see that (in terms of economic utility), 2 things can happen:

1) The cost of production is too great, so the product (read: new jobs, new industries, old industries, etc.) doesn't get produced. (read: close down of existing US manufacturing and services, reduced investment in new businesses and venture capital, etc.)

2) If labor is mispriced (see above discussion), then capital and other raw materials will be substituted as much as possible. This again means fewer jobs when the logical production input would be labor (except for its mispricing due to government, unions, etc.)