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I don't think deflation has to drive wages down actually. Deflation simply means that your dollar (or CHF) can buy more tomorrow than today, and hence unless yo

I don't think deflation has to drive wages down actually. Deflation simply means that your dollar (or CHF) can buy more tomorrow than today, and hence unless you can invest in something that appreciates faster than that rate, you would keep the money in cash rather than spending it, unless your expense is really necessary (say food). Inflation then of course means that your money is worth more today than tomorrow, and therefore you are more likely to spend it (and more investments become attractive, as long as they perform better than the currency). Will wages come down, over time in a purely deflationary economy probably yes. But unlike most inflationary economies where it is usual to have a x% salary growth y/y, I think the barrier to sign a contract that says: "your salary is X, and will decrease by z% per year" is a lot higher. So, if a country has only mild deflation - like Switzerland - the real value is actually likely to go up. > wages go up (people like that) That's also not a given, its likely to have a raise in contracts, but if I promise you a 2% yearly raise with inflation of 3% you are not really getting a great deal, are you? > [..] major demographic issues True, I see inflation as a great way to equally tax 'old money', and in a way that is almost impossible to escape. In the end inflation is good for those with debt (governments/corporations are first in line), deflation is great for those with cash (but not necessarily other assets, those will probably adjust to the new price level).

Mikeb85 11y ago
In a true deflationary atmosphere, firms will receive less money and eventually the equilibrium of the economy hits a 'tipping point' where wages will have to go down. Switzerland isn't there, the price of domestic goods has actually gone up slightly, only the price of imported goods has gone down drastically. And you're also right about the stickiness of wages - generally firms don't reduce wages, but lay off workers then re-hire at lower wages. Either way the effect at the macro level is the same.

Mikeb85 11y ago

In a true deflationary atmosphere, firms will receive less money and eventually the equilibrium of the economy hits a 'tipping point' where wages will have to go down. Switzerland isn't there, the price of domestic goods has actually gone up slightly, only the price of imported goods has gone down drastically. And you're also right about the stickiness of wages - generally firms don't reduce wages, but lay off workers then re-hire at lower wages. Either way the effect at the macro level is the same.