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Economist: Longer Workweek Risks Deflation

Longer workweeks proposed by many German businesses at the moment could lead to a deflation, Gustav Horn of the German Institute for Economic Research (DIW) told the Financial Times Deutschland. "The European Central Bank should react to longer workweeks by lowering interest rates," he said. "If it doesn't do that, Germany could face a deflation." This could happen because longer workweeks in effect mean lower hourly wages for workers. Companies could then pass on the savings by lowering prices. "To overcome a crisis by lowering hourly wages is an extremely dangerous strategy," Horn said, citing the Japanese economic crisis as an example of how deflation can have a devastating effect on consumption.

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