Step 2 is:<p>* Austerity slashes public sector worker pay and pushes public sector workers into unemployment.<p>* Since public sector and private sector workers compete in the same job market, reducing the wages of one reduces the wages of the other through increased competition.<p>* Since the public sector is the largest single customer of the private sector, reducing its spending reduces the income of the private sector. This leads to lay offs and retrenchments in pay as well.<p>* Increasing unemployment also puts downward pressure on wages. The more desperate people are to have a job, the lower the wages they will accept.<p>* More downward pressure is put on wages by slashing social security, too (usually austerian target #1). The more <i>unpleasant</i> you make unemployment, the more desperate people will be to take a job. The more desperate people are to take a job, the lower the wages they accept will be.