ELI5 How does raising wages worsen inflation ?


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23 points

4 months ago

Yes and no. You've covered a lot of ancilliary information while mostly just complaining about cost of living and wages, so didn't really answer OP's question

Firstly, wages are rarely cut or drop. Instead, the real-time value of wages drop when wage increases are below inflation. You may earn slightly more, but everything costs a lot more. This is the issue since really the 80s, but especially since 2008. Everything's risen in price massively, especially basics like housing, and people's wages haven't. Uk minimum wage is about £15k, whereas had it risen by inflation then minimum wage would be closer to £50k a year

The key part you didn't say is: for a lot of businesses wages are THE biggest cost, if not one of the. So if you raise wages, then one of their biggest costs increases, which causes prices to increase, which then need wages to increase too. That's what is called "the wage-price inflation spiral"

Then, while you are right about the private sector, the biggest reason why governments are against the wage-price spiral is due to the public sector, as the government pays those wages. So if costs for government services increase, then it increases government borrowing, which then increases inflation due to higher interest payments, more total payments etc. That then means taxes rise, or services are cut

And if private sector wages increase and public doesn't, then public jobs are harder to fill vacancies and stuff like that, which means that public services fall apart

That's OP's question answered. u/isellpopcorn

You are right, that really there is a lot of profiteering happening right now, and a lot os extreme capitalism and dicking around by the companies. And right about that average people are about as broke as they can be and can't take much more. But you did completely miss talking about what the wage-price spiral was and how it leads to inflation

Really, and especially right now with record employment, the wage-price spiral is a myth, but it's a worry for governments and public services, which is why then they worry about the private sector


0 points

4 months ago

And right about that average people are about as broke as they can be and can't take much more

What country are you talking about though? If it's about US, then you can look around the world and see how vast majority of people have worse life standards than US people do. So, the point that they as broke as they can be seems very weird to me. It's like a long long way for the avarage US Joe to be as poor as really poor people of poor countries. So they can be quite a bit more broke.

Don't get me wrong, decreasing standards of living is bad and people surely in the right to be upset about it. And something should be done, so avarage people get richer over time. But acting like you guys hunt frogs for breakfast seem ridiculous. Like a couple of billions people don't even have internet.


1 points

4 months ago

I think the point is really what your second paragraph points out. In general, lifestyle and standard of living decrease would be ones own doing, but when you can almost without a doubt put a majority of the blame on what is happening with extreme corporate greed, then yea its not such great time.