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Inflation is not arbitrary. To some extent this should be like the minimum a company should offer. If not, it means the money you bring home might not be able t

Inflation is not arbitrary. To some extent this should be like the minimum a company should offer. If not, it means the money you bring home might not be able to cover all your expense + saving.

mehrdada 5y ago
Let's say you earn 500k and your cost of living is 200k leaving you with 300k additional disposable income. Assuming a 7% increase in your cost of living, you still have $300-$200*.07 additional disposable income. The question now is, why should the company be the one absorbing this loss and not the employee selling the labor, to put it bluntly, let alone adding an extra 7 percent to your extra $300k? Even if they are able to pull a price increase, they will be under pressure by shareholders to keep the profits to preserve the share price to offset the collapsing multiples. Surely at the borderline compensation levels or below, cost of living increases can make a material difference to the employee's ability of providing their services in the first place, out of their control (analogous to a negative gross margin for a vendor), and force them into pursuing an alternative solution (reducing expenses, moving to a different location, moving to a different industry). However, if the employees are significantly above that limit, the primary reason the employee is able to justify their additional earnings must be competition in the labor market, so that should be the driving factor here as well.
- tkiolp4 5y ago
  The company doesn’t have to… unless the employee decides to leave for that reason. Now adding an extra 7% is not about inflation but about retaining (good) employees. I imagine that for bad or not good enough employees, the decision is rather easy for companies: let them go.
  - mehrdada 5y ago
    > Now adding an extra 7% is not about inflation but about retaining (good) employees. Sure, and that distinction is the entire point, i.e. retention for [Silicon Valley and similar] tech employee is likely not dominated by the value of 7% but what the labor market dictates in terms of compensation, benefits, and company culture; could be a lot higher but by-and-large not directly driven by consumer price increases.
sdoering 5y ago
It depends. The number attached to (and reported about) inflation is dependent on the index, the products that are used to calculate the price delta. As well as the estimated share the specific products have in this virtual shopping cart. This shopping cart doesn't necessarily represent your or mine reality. If I compare myself now with my pre-corona self I massively reduced the need for gasoline. I work from home and don't commute > 300 kilometers per week anymore. I fill my gas tank about once every two months compared to twice per month. So the impact of rising gasoline prices to me is way less now. While the consumer index in Germany stayed the same. So my individually felt inflation differs massively from the average inflation that is based on a politically decided upon virtual shopping cart. It could have something to do with my reality. Or it could not. In that regard it is an arbitrary number. It could be higher or lower. And from experience - but that is anecdata - the more one earns the less inflation is subjectively relevant.
DeathArrow 5y ago
For sure it isn't. Let's imagine there is a imaginary currency λ which isn't affected by inflation. That way USD will have x% inflation when compared with λ and EUR will have y%. Those x% and y% will reflect all price changes in their respective economies. If banks wouldn't give up to gold standard we would probably see almost no inflation since gold is a finite resource while fiat money are not. We can even judge inflation by rising gold prices.

Inflation is not arbitrary. To some extent this should be like the minimum a company should offer. If not, it means the money you bring home might not be able to cover all your expense + saving.

mehrdada 5y ago

Let's say you earn 500k and your cost of living is 200k leaving you with 300k additional disposable income. Assuming a 7% increase in your cost of living, you still have $300-$200*.07 additional disposable income. The question now is, why should the company be the one absorbing this loss and not the employee selling the labor, to put it bluntly, let alone adding an extra 7 percent to your extra $300k? Even if they are able to pull a price increase, they will be under pressure by shareholders to keep the profits to preserve the share price to offset the collapsing multiples. Surely at the borderline compensation levels or below, cost of living increases can make a material difference to the employee's ability of providing their services in the first place, out of their control (analogous to a negative gross margin for a vendor), and force them into pursuing an alternative solution (reducing expenses, moving to a different location, moving to a different industry). However, if the employees are significantly above that limit, the primary reason the employee is able to justify their additional earnings must be competition in the labor market, so that should be the driving factor here as well.

tkiolp4 5y ago
The company doesn’t have to… unless the employee decides to leave for that reason. Now adding an extra 7% is not about inflation but about retaining (good) employees. I imagine that for bad or not good enough employees, the decision is rather easy for companies: let them go.
- mehrdada 5y ago
  > Now adding an extra 7% is not about inflation but about retaining (good) employees. Sure, and that distinction is the entire point, i.e. retention for [Silicon Valley and similar] tech employee is likely not dominated by the value of 7% but what the labor market dictates in terms of compensation, benefits, and company culture; could be a lot higher but by-and-large not directly driven by consumer price increases.

sdoering 5y ago

It depends. The number attached to (and reported about) inflation is dependent on the index, the products that are used to calculate the price delta. As well as the estimated share the specific products have in this virtual shopping cart. This shopping cart doesn't necessarily represent your or mine reality. If I compare myself now with my pre-corona self I massively reduced the need for gasoline. I work from home and don't commute > 300 kilometers per week anymore. I fill my gas tank about once every two months compared to twice per month. So the impact of rising gasoline prices to me is way less now. While the consumer index in Germany stayed the same. So my individually felt inflation differs massively from the average inflation that is based on a politically decided upon virtual shopping cart. It could have something to do with my reality. Or it could not. In that regard it is an arbitrary number. It could be higher or lower. And from experience - but that is anecdata - the more one earns the less inflation is subjectively relevant.

DeathArrow 5y ago

For sure it isn't. Let's imagine there is a imaginary currency λ which isn't affected by inflation. That way USD will have x% inflation when compared with λ and EUR will have y%. Those x% and y% will reflect all price changes in their respective economies. If banks wouldn't give up to gold standard we would probably see almost no inflation since gold is a finite resource while fiat money are not. We can even judge inflation by rising gold prices.