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Inflation is not caused by wage increases. Very much the opposite: wage increases are caused by inflation, but it tends to lag 1 or 2 years behind because that'

Inflation is not caused by wage increases. Very much the opposite: wage increases are caused by inflation, but it tends to lag 1 or 2 years behind because that's usually how long it takes to the average worker to realize his purchasing power has been depreciated and decides to negotiate inflation reparation.

bequanna 4y ago
This is incorrect. It is commonly accepted that wage increases tied to inflation (many of which were union contracts) prolonged the stagflation of the late 70s.
- danaris 4y ago
  A lot of negative things about unions are "commonly accepted;" that doesn't make them true. It's possible that those wage increases did have a negative effect, but especially in this time of massively increased anti-union propaganda, I think that anything negative about them being claimed as "commonly accepted" deserves a [Citation Needed].
- rsaesha 4y ago
  Wrong. In a high inflation economy, salaries lags behind prices increases. This is because revenue of companies typically follow inflation indexes with a much shorter delay. First the workers need to feel they are getting shafted and this takes time. Like, first they burn through savings, then they see news 'inflation double digits', then they see pay increase in single digits and this takes 1~2 years. Then they feel a reduction in quality of life. Then they negotiate adjustment and if companies refuses sometimes they strike, sometimes they leave for another job, sometimes they take the shaft. On a wide scale, the reduction of purchasing power causes the demand for non essential goods to drop massively, while the demand for essential goods remains stable. The reason for this is simple: people cut the luxury if they have been shafted at their job. But they can't cut essential goods. So it's better to be a company that sells essentials goods in a high inflation scenario eg: oil and gas, meaning people can't cut you from their budget.
  - belltaco 4y ago
    Not fully true. https://en.wikipedia.org/wiki/Wage-price_spiral https://en.wikipedia.org/wiki/Wage-price_spiral
    - deleted 4y ago
      [deleted]
    - rsaesha 4y ago
      From your source: Criticism The Socialist Worker argues that it is a myth used to prevent wage increases.[6] Tribune magazine also sees the concept as rhetoric intended to hold down worker wages.[7] Milton Friedman criticised the concept of wage-price spirals, arguing "It's the external manifestation of inflation, but not its source... the inflation arises from one and only one reason: an increase in a quantity of money."[8] Wage-price spirals will break naturally if the quantity of money is not increased, albeit in the meanwhile "there will for a time be a continuation of inflation" as well as "some measure of recession and unemployment".[8]

bequanna 4y ago

This is incorrect. It is commonly accepted that wage increases tied to inflation (many of which were union contracts) prolonged the stagflation of the late 70s.

danaris 4y ago
A lot of negative things about unions are "commonly accepted;" that doesn't make them true. It's possible that those wage increases did have a negative effect, but especially in this time of massively increased anti-union propaganda, I think that anything negative about them being claimed as "commonly accepted" deserves a [Citation Needed].
rsaesha 4y ago
Wrong. In a high inflation economy, salaries lags behind prices increases. This is because revenue of companies typically follow inflation indexes with a much shorter delay. First the workers need to feel they are getting shafted and this takes time. Like, first they burn through savings, then they see news 'inflation double digits', then they see pay increase in single digits and this takes 1~2 years. Then they feel a reduction in quality of life. Then they negotiate adjustment and if companies refuses sometimes they strike, sometimes they leave for another job, sometimes they take the shaft. On a wide scale, the reduction of purchasing power causes the demand for non essential goods to drop massively, while the demand for essential goods remains stable. The reason for this is simple: people cut the luxury if they have been shafted at their job. But they can't cut essential goods. So it's better to be a company that sells essentials goods in a high inflation scenario eg: oil and gas, meaning people can't cut you from their budget.
- belltaco 4y ago
  Not fully true. https://en.wikipedia.org/wiki/Wage-price_spiral https://en.wikipedia.org/wiki/Wage-price_spiral
  - deleted 4y ago
    [deleted]
  - rsaesha 4y ago
    From your source: Criticism The Socialist Worker argues that it is a myth used to prevent wage increases.[6] Tribune magazine also sees the concept as rhetoric intended to hold down worker wages.[7] Milton Friedman criticised the concept of wage-price spirals, arguing "It's the external manifestation of inflation, but not its source... the inflation arises from one and only one reason: an increase in a quantity of money."[8] Wage-price spirals will break naturally if the quantity of money is not increased, albeit in the meanwhile "there will for a time be a continuation of inflation" as well as "some measure of recession and unemployment".[8]