Rising International Inflation Rates
and Their Effects on Real Wages of Workers
During the past three years, the
world economy has continued to produce significant increases in inflation rates.
During the month of January, consumer price grew much more than expected in the
United States, Britain, and Europe. Additionally, recent territorial tensions
between Ukraine and Russia sent the price of oil to over ninety-six dollars a
barrel, the highest market price it has reached since 2014. As a result, economies
on both sides of the Atlantic Ocean have introduced some regulatory economic policies,
particularly that of monetary tightening. While the primary reason for implementing
these policies is the aforementioned sudden increase in inflation rates,
another reason for this action comes in the form of public opinion, as many banking
institutions have begun to worry their credibility in the eyes of the public has
waned during this most recent period of economic instability and decline.
These occurrences have garnered the
concern of policymakers, particularly in relation worker wage demands. One of
the more dangerous effects of high inflation is that in some cases, it can
cause an increase in worker wage demands, or the amount of money that workers
feel they should be paid in comparison to prices, the economy, etc. If these
two singularities begin to affect one another, it can create a scenario known
as a wage-price spiral, where workers demand to be paid more because of rising
prices. If allowed to escalate, a demand for higher wages can cause increases
in other sectors of the economy such as inflation and price, hence the wage-price
spiral.
Unfortunately, the group that suffers the most from this economic phenomenon is workers themselves, as they suffer disproportionately compared to corporations or businesses when it comes to changes in price. However, it is important to note that it does put the policymakers in charge of price and money supply in a precarious situation, as the idea of wages increasing too quickly can be politically divisive and cause negative reception from the labor force.
Source: https://www.economist.com/leaders/workers-have-the-most-to-lose-from-a-wage-price-spiral/21807722
Hopefully the FED will get a handle on inflation and start the return to normal prices. On another hopeful note, hopefully the Russia, Ukraine situation resolves itself peacefully and the price of oil can lower. Oil prices rising are one more thing the general population has to worry about now.
ReplyDeleteI was looking at the graph and consumer prices increased from 2% to 7% from 2020 to 2022. Average hourly earnings decreased from 5% to almost 0% from 2020 to 2021 and then went back up to 5% from 2021 to 2022. When inflation increases it negatively affects wages.
ReplyDeleteIf inflation is rising, workers will demand a higher wage in order to afford what they could afford before. Higher inflation raises the nominal wage rate, but decreases the real wage rate because the rise in wages is due to the rise in inflation. The Fed should take action to combat inflation.
ReplyDeleteThese will definitely result in a decrease in real wages. I am interested in seeing spending habits of consumers in this situation.
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