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What Are The Mechanisms For Wage Inflation?


ezekiel
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Hi

I was reading the Market Oracle news blog this morning; the author was saying that house prices were near "nominal" bottom because the QE would cause inflation (he was then saying that house prices would stay static while inflation took hold for a number of few years and that this would cause the rest of the house price fall to be adjusted).

While I can see that there is a risk of inflation (and the likes of Liam Halligan make a good case), in my personal experience (my work, the situations of friends etc.) I can't see how there will be any wage inflation. Simply put, while there may be price inflation of goods, I can't see how QE can put money into my wages.

At work we've skipped bonuses (that were expected), skipped this year's annual pay review, taken pay cuts (10%) and dropped prices of our products. Friends are experiencing similar issues (pay cuts etc.) or are looking at the threat of redundancy or can't find work.

I appreciate the govt can give money to the banks via QE but it will only end up in the public's pockets if they want (or able to qualify) to borrow it. I don't think there is much appetite for borrowing now so this is largely irrelevant (IMHO) and in any case it doesn't turn into wage inflation (which the Market Oracle author's case was depending on).

So my question is - does anyone have a list of mechanisms whereby wage inflation will go up? Answers need to balance demand from work force with the employer's ability to pay more.

Thanks

Eze

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I found this interesting essay in regards to wage inflation. Its a bit technical and written with the American labour market in mind, but I think the core of it rings true for us here.

The conclusion is as follows:

There is no systematic evidence that wages (either conventionally measured by compensation or adjusted through productivity and converted to unit labor costs) are helpful for predicting inflation. In fact, there is more evidence that inflation helps predict wages. The current emphasis for using labor market activity to forecast short-term inflation pressure would appear, therefore, to be unwarranted. The policy conclusion to be drawn is that inflation can appear regardless of recent wage trends.

Seems to say that wage inflation is a function of the market, and like most things in life which involve humanity, is also irrational and unpredictable.

Source

DOES WAGE INFLATION CAUSE PRICE INFLATION?

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Hi

I was reading the Market Oracle news blog this morning; the author was saying that house prices were near "nominal" bottom because the QE would cause inflation (he was then saying that house prices would stay static while inflation took hold for a number of few years and that this would cause the rest of the house price fall to be adjusted).

While I can see that there is a risk of inflation (and the likes of Liam Halligan make a good case), in my personal experience (my work, the situations of friends etc.) I can't see how there will be any wage inflation. Simply put, while there may be price inflation of goods, I can't see how QE can put money into my wages.

At work we've skipped bonuses (that were expected), skipped this year's annual pay review, taken pay cuts (10%) and dropped prices of our products. Friends are experiencing similar issues (pay cuts etc.) or are looking at the threat of redundancy or can't find work.

I appreciate the govt can give money to the banks via QE but it will only end up in the public's pockets if they want (or able to qualify) to borrow it. I don't think there is much appetite for borrowing now so this is largely irrelevant (IMHO) and in any case it doesn't turn into wage inflation (which the Market Oracle author's case was depending on).

So my question is - does anyone have a list of mechanisms whereby wage inflation will go up? Answers need to balance demand from work force with the employer's ability to pay more.

Thanks

Eze

Unions with collective bargaining power. In the private sector the only driver is skillset. If the skills are in short demand then companies will pay, if people with skills are plentiful there will be no wage inflation.

Why do you think Brown has let uncontrolled immigration? Simple keep wages down.

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Unlike in previous decades this time really is different and I cant see wages rising to keep nominal prices in situ. Since the 80s we have:

Lost the power of unions.

Had our employers playing field expanded to include almost the entire world within their employee catchment area.

Had outsourcing of not only manufacturing, but low to mid level technical and IT jobs and even many high end jobs, to foreign countries.

Workers have lost much of their leverage and employers have been allowed to circumvent market forces by going abroad or importing workers and thus we are in a completely different world. Seems 'they' are stuck in a paradox, whereby 'they' want asset prices to stay high but are doing everything to defeat the means to keep asset prices high. ie by killing wages and creating higher local unemployment by getting foreigners in to assist the negative wage process.

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Central banker creates money and wants some work doing.

He looks around for the people who can do the work, then outbids everyone else to buy their services. Then those people outbid others for the services of the next guy and so on and so forth.

All work is done for the bankers, all wages flow from them in the form of payments to others above and beyond current market rates (but not by much cos they aren't daft.) yopu might have noticed that the banker is paying the new wages by stealing from current currency holders, and this is why wages fall the further away from the central bank the population is.

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