Hugh Johnson
Member
That is not how the economy works. If there is enough aggregate demand, they will keep hiring to fullfill demand. If the productivity per worker goes down, this might mean that the Icelandic currency loses a few percent in value, and thus the labour there becomes cheaper, which will balance it out.It's not that simple though. In an increasingly regulated job market, companies will find it less and less profitable to create and keep jobs and might ultimately leave the country altogether. There's a reason why this experiment was conducted by state companies: only they can afford to. As the economy shrinks however, not even state companies will be able to keep the experiment going. The state will have to raise taxes and the people will be left worse off...