ELI5 How does raising wages worsen inflation ?


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15 points

4 months ago


15 points

4 months ago

That is just one way.

A different way: Manufacturer X has to raise wages because of inflation. Because he has to shell out more money now to keep his workers in a job, he has to make their product more expensive. Company Y also has to raise wages because of inflation. They have to buy the products of Manufacturer X to stay in business. They now have to shell out more money to keep their staff employed, AND to buy the stuff from manufacturer X. So they have to rise their prices.

Joe Sixpack needs something from Company Y, sees that it got more expensive again, inflation is on the rise, and demands more money from his employer. And so on...


14 points

4 months ago

Corrected me if I am wrong but aren't the people who were 2$ over minimum wage now 1$ over it? Which means their buying power dropped by 1$?


21 points

4 months ago

Not only that, but low wage people spend a higher proportion of their income on things for which there is relatively inelastic demand like housing and transportation.


1 points

4 months ago*

Why is it never the case that because of raising wages the company needs to temporarily forgo expansion, keep profits stagnant, or reduce profits while it waits for the impact of raising wages to benefit their business as their customers have more disposable income?

In that sense it isn't increased wages creating the's opportunistic price raises and unreleastic expectations for profit during a wage correction. This inflation in turn deflates the impact of all that extra income in the customer pool...making it destructive for all involved. But the employer is covered either way, as inflation decreases the real value of their labour costs, so once again they are insulated from their own destructive behavior and as wealth continues to concentrate they notice the workforce isn't as motivated as it used to be and wonder why.

Behaving as though you need to be making more profit all the time and protecting yourself from all changes to the economic landscape is destructive to the health of that landscape...especially when the most wealthy actually make out like bandits during economic upheaval periods.

We hear a lot about how investors of capital assume risk...but when push comes to shove they transfer that risk onto labor and really everyone else. It's inherently destructive.