Wage inflation

Wage inflation is a type of cost inflation, which arises precisely when there are increases in the wage factor and such increases are transferred directly to the price of what is produced.

As this form of inflation originates through the elevation of one of the components of the production factors, that is, it is one of cost inflation. Therefore, this form of inflation is on the supply side, unlike other types of inflation that come through demand. As an example, we have the so-called demand inflation, which is a form of inflation that is caused by excess demand.

Key factors that cause wage inflation

Recall that the cost of production is composed of raw materials, labor and indirect manufacturing costs. It turns out that cost inflation is caused by one of these cost elements. Precisely, this inflation situation is fundamentally caused by the rise in the salary component. This is the reason why this inflation is referred to as wage inflation.

In the economies where this form of inflation has been recorded, it has been shown that this type of cost inflation is also strongly related to situations that have to do with the distribution of income. This is because salary increases ultimately reflect the struggle for a greater share of income participation by sectors or social groups.

Measures to combat or eliminate wage inflation

When it comes to measures to act on cost inflation, in the economies where these forms of inflation are presented, and more precisely by salary. The correct thing is that the authorities in charge of creating and applying economic policy measures directly attack the triggers of this form of inflation. Therefore, they must apply measures that mainly combat aspects related to income.

Policies usually aim to achieve greater equity in the distribution of income. Therefore, measures are taken that are aimed at profits and dividends. This in order to achieve equity in the distribution of income growth.

Also, the authorities are usually rigid with the claims of wage increases that the unions carry out. Not to obey union pressures that are clearly excessive requests. Remembering that there are conflicting interests between employers and workers with price expectations.


by Abdullah Sam
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