Why Paychecks Could Shrink by Peter Coy - Article Example

The assumption Peter Coy makes in the article is purely economical. He says that due to a glut of unemployed people in the market, the labor market will experience a pay decline. According to him, as there is a large supply of labor in the market due to unemployment, this abundance will shift the supply curve of the labor market to the right and pay will decline. Another reason for this pay decline is a low level of inflation. It is believed that pay levels are often pegged with inflation but due to the low inflation rate in 2009, pay levels will not increase by a large amount and hence the labor or workers will have to go through a turbulent period of low wages.

He also states that low wages are going to reduce the income of people and those who have to pay debts or mortgages will reduce their unnecessary expenditure. This reduction in expenditure is going to further harm the economy as this will reduce the overall demand level in the economy and create further unemployment and build a wage decline and plummeting demand spiral.In my opinion, the issues raised by Peter Coy are more theoretical than to have implications in the real world. For example, low inflation would mean that people might still get enough to meet their needs even in low incomes without having to cut down on expenditure and hence wage decline spiral might never build up.

Similarly, Coy has also stated that further unemployment might occur due to plummeting demand.