Price/wage spiral
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In macroeconomics, the price/wage spiral (also called the wage/price spiral or wage-price spiral) is a theoretical concept that represents a circle process in which wage increases cause price increases which in turn cause wage increases, possibly with no answer to which came first. According to the concept, it can start either due to high aggregate demand combined with near full employment[1] or due to supply shocks, such as an oil price hike. There are two separate elements of this spiral that coexist and interact:
According to the concept, "wages chase prices and prices chase wages", persisting even in the face of a (mild) recession.[citation needed] This price/wage spiral interacts with inflationary expectations to produce long-lived inflationary process. Some[who?] argue that incomes policies or a severe recession is needed to stop the spiral.[citation needed]
The first element of the price/wage spiral does not apply if markets are relatively competitive.[citation needed]
The spiral is also weakened if labor productivity rises at a quick rate. Rising labor productivity (the amount workers produce per hour) compensates employers for higher wages costs while allowing employees to receive rising real wages, and while allowing the company's margin to stay the same.[citation needed]
See also
^ "Theory 6 – Wage-price spiral – is inflation spiraling out of control?". Biz/ed. Archived from the original on April 8, 2009.
Last edited on 16 January 2021, at 21:36
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