In a very simple economic situation, the theory is that wage raises will increase inflation. Then again, this is a theory without much empirical evidence behind it. The current levels of inflation are really down to international pricing of commodities, due to shortages, more than anything else, making it very difficult to predict what will and won’t affect inflation.
Most economics like this really comes down to a mixture of guesswork and as the saying goes you will get as many different opinions as the number of economists you ask.
Would it not also have higher costs for businesses and therefore increased costs to the consumer to cover it?
Which… I’m guessing might lead to a cost of living crisis, leading to wages needing to be increased and… ah, oh dear.
I’m not against pay rises at all, obviously, but I am fascinated that pay rises for some sort of rely on others not getting one to keep the economy level enough to tackle inflation.
So in my basic brain you could either keep wages the same but give people more money to spend to cover increased costs (but they won’t increase costs to businesses) like a reduction in taxes or reduce the costs for businesses so that they can increase wages for their staff?
For most people any wage increase will go straight to a utility company. My economics understanding is quite basic, but that’s got to cause a difference vs it being recreational spend.
True but if the energy company have increased staff costs by inflationary amounts then they need to cover that cost and will just use the extra money from the consumer to do so.
And around we go.
The more I think of it the more I am glad I don’t have to resolve these issues.
One thing to bear in mind here is that inflation is only one measure of a ‘healthy’ economy. How you actually decide how an economy is ‘good’ is a huge debate in itself
If you take the measure of ‘does it make life better for the people in it’ - which is actually the measure I like to use because otherwise what’s the point in the ‘economy’ being ‘good’, probably high wage growth + high inflation is a far better situation than we have had for many years with declining real wages and increased costs of living for the vast majority of people.
until the businesses with the high wage growth and high inflation say enough is enough, I as the owner with all the risks involved am not making anywhere near what Im having to pay out to produce my goods, sod it I won’t do it, and lays off the workforce and goes bust
Didn’t Bhutan or somewhere measure themselves on happiness?
In theory that sounds good but I’m not sure in reality if it plays out well. From my understanding when the economy is doing well people can be looked after better and life seems to be better.
If prices keep going up, even if wages keep up, it all seems a little… unstable.
But I honestly am just throwing things out here.
Point is mostly that if a company isn’t paying increases that beat inflation could that possibly be a long term positive for the economy (even if negative for the short term for the person).
I’d have more sympathy for people putting forward the “pay rises are inflationary” narrative if they even paid lip service to the obscene inequality in incomes that only seems to be getting worse!
I agree it is obscene , however most businesses in UK are SMEs employing up to 50 employees with rising costs inflation , wages, transport etc etc they dont have the funds to support all the extra demands - the report is for FTSE 100 , there are 5 million SMEs in the UK
how do you fix a pound that is losing value against a strong dollar because of inflation and a pandemic when we import most things in dollars , supplies of goods being restricted at felixstowe , the war in Ukraine that has made grain more costly, Gas supplies being in short supply and high demand because of decisions that Germany made and that Russia is now taking full advantage of
It does! Not that I’m suggesting moving GDP targets to happiness targets, that’s sort of madness . (cute, but we are a G20 economy in the capitalist world, it just wouldn’t wash).
What I am saying though is that when we think about ‘is the economy good right now’, somewhere that should be rooted it ‘how is it working for the people in it’. There are a large number of measures, GDP growth, GDP per capita, inflation targets, interest, productivity measures, inequality metrics etc. But these are all just indicators, and they all compete with each other in a way.
The US is a great example of where things go wrong IMO, yes their on paper metrics are all great, but they have huge problems with inequality, deprivation and infrastructure. Is their economy ‘good’? I don’t think it is, I think it’s pretty broken actually. And I think we’ve been heading to a similar level of brokenness for some time. And I don’t think paying people fair wages is in any way going to make things worse for the people living in this country to be honest. At least I haven’t seen any sensible argument or convincing evidence that says it will, and I follow these things very carefully.
If people earn more money they will have more money to spend.
Unlike the super wealthy who stash their money abroad in overseas investments and savings, lower paid people tend to spend their money locally and quickly.
That’s actually great news for business because it means they can sell more things.
I feel the solution lies in wealth tax of some sort. Income tax is one thing, but I think if you have an accumulated wealth of over £5mil or so, you should start to be taxed on that to some extent.
It doesn’t have to be 98%. Even a modest 0.3% of wealth over £5mil due annually as tax (representing a total of 20% over a 70 year lifespan to be given back to the state) would raise an enormous amount of money.
not sure how much these 177 billionaires contribute to the UK in terms of owning companies that employ thousands if not hundreds of thousands, paying wages / taxes pensions for their employees, spending on lavish lifestyles, more petrol for their cars / jets etc etc …or maybe they all just sit in dark rooms counting their money or could actually feck off to grand cayman with their loot and spend it all there
. (cute, but we are a G20 economy in the capitalist world, it just wouldn’t wash).