Both wage growth and inflation are really high. What does this mean for America amidst the recovery of the Covid-19 pandemic?
In the past year, the American hourly pay rose by 4.6% and there was consumer-price inflation of 5.4% which is canceling any increase in pay that we have seen in the past year. This is not only happening in the United States but as well as in Germany and Japan the public-sectors are asking for a pay increase.
What are the causes of these higher prices? It is the high demand for goods with the blockage of supply chains as well as energy prices have escalated. We know the cause for the increase in consumer-price inflation but is still unknown the exact cause of wage growth is. Is it because workers are unwilling or unable to take the many jobs that are at hand? Additional reasons for this labor shortage could be the struggle to move through professions or to a different physical place, as well as the continued fear of the Covid-19 virus. Is it from the lingering effects of the economic stimulus that are keeping workers from finding work? Or is it that people now put time with their families above their careers? All of these could be the cause for the increase in the wage but it is not possible to say which one exactly.
There are three ways to avoid long-lasting inflation; firms could absorb higher wages in their margins rather than raising prices, productivity growth could make a higher increase in real-wage sustainable, or idle workers could return to the labor force.
The unknowing of the cause of wage growth makes it difficult for central banks to make their decisions. They have to focus more on labor supply due to it taking about 18 months for the central bank’s policies to go through the economy. So far the recovery from the Covid-19 pandemic is mediocre, and there are minimal signs that the end of the stimulus plan increased the number of people returning to work.
https://www.economist.com/leaders/2021/10/16/is-the-world-economy-entering-a-wage-price-spiral
1 comment:
It was very interesting to learn about how average pay has risen but so has inflation, canceling out any impact that a rise in pay would have on workers or their quality of life. Demand is increasing and the supply cannot keep up with it. There is also a lack of workers and many open jobs. All of the questions that you raised are also very interesting to think about when it comes to this issue.
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