What inflation does to real wages
I think this article is an interesting one that is directly related to what we are talking about in class. In the article it speaks about how many people think wage rates increasing leads to the inflation rate increasing, where in actuality the real wage rates decrease in times of inflation. Michael Pento is the Senior Economist for Euro Pacific Capital, a pretty quick read as well as interesting, give it a look.
Yes, inflation does cause real wage rates to go down. Inflation also has several costs and benefits. One such cost is increasing menu costs and one such benefit is a better functioning labor market.
ReplyDeletePeople seem to confuse the real wage rate with nominal wages because in times of inflation nominal wages do rise because it seems like you have more money but in reality your money goes not as far as it would before
ReplyDeleteThere's an interesting theme in economics involving the public's perception of economic ongoings. We've seen the watered-down, not-so-intelligent way that politicians often talk about the economy in order to invoke emotional responses from an audience. This article is just further proof that America is a nation of people who do not understand their own economy.
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