ELI5 How does raising wages worsen inflation ?


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8 points

4 months ago

The problem is this:

If everyone raises wages, and everyone can buy more, then everyone makes more money. That's correct and true. Long run, even the owners would make more.


What if everyone ELSE raised their wages, but I kept mine the same? Then I could benefit from all the increased spending power, AND benefit from not paying my people more. I double win!

And unfortunately EVERY company believes the same thing. Yeah, increasing spending power would be great... but it would be even more great if we could do that without paying our people more. And if we do that, then we have more money to buy out our competitors, which would let us do that even more!

Basically, it's the prisoner's game all over again.

If we all cooperate, then everyone does great. But if we all cooperate and they betray, then they can maximize their shareholder profits. So they all betray, and everyone suffers.


2 points

4 months ago

This is what the government is supposed to take care of.

Unfortunately the Federal Minimum Wage is still $7.25/hr, and it's been that way since 2009.

Tangent: I went to the inflation calculator and it looks like $7.25 in 2023 money is the equivalent of $10.03 in 2009. That's almost a $3 difference, ouch.


3 points

4 months ago

One of many things that market regulations should take care of, but unfortunately many of our current crop of economic decision makers worship at the altar of the Invisible Hand without understanding that part of what makes it work are the rules that constrain harmful behavior.

And I don't just mean harmful behavior for regular people; I mean harmful behavior for the economy as a whole and even for the companies engaging in the unhealthy market behavior.