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The only justification for this is preventing a self-perpetuating inflationary feedback cycle. Wage increases increase COGS, which increases prices, which leads
by ethbr0 4y ago
The only justification for this is preventing a self-perpetuating inflationary feedback cycle. Wage increases increase COGS, which increases prices, which leads to demands for wage increases.
Once that gets going (encoded in labor contracts and expectations), it's very hard and even more painful to break.
Whether that's what we're seeing now... or it's temporary supply side impacts... economists for more data than I can argue over.
- petra 4y agoBut labor cost increases is a small part of COGS. So this means this feedback cycle you mention is steeply negative and will stop quite soon.
- koheripbal 4y agoThis entirely depends on the industry. In many industries, labor is a major input cost.
- socialismisok 4y agoPrice increases could be offset by a number of adjustments to other inputs to COGS. Reducing CEO pay, nationalizing health care (so it's no longer an employer cost), price controls on material inputs, reducing profit margins, increasing production efficiency, etc. Yes, wages are a cost. But raising wages aren't a guarantee of price increases.