NO ADVERTISING, GOVERNMENT OR CORPORATE FUNDING
DONATE TODAY

  $191,272



  March 7, 2010

Do higher wages cause inflation?


Robert Pollin addresses wages and prices
Members don't see ads. If you are a member, and you're seeing this appeal, click here
   


Audio

Share to Facebook Share to Twitter



I support The Real News Network because it lets viewers voice their uncensored opinions. - David Pear
Log in and tell us why you support TRNN


biography

Robert Pollin is Distinguished Professor of Economics and Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts-Amherst. He is also the founder and President of PEAR (Pollin Energy and Retrofits), an Amherst, MA-based green energy company operating throughout the United States. His books include The Living Wage: Building a Fair Economy (co-authored 1998); Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity (2003); An Employment-Targeted Economic Program for South Africa (co-authored 2007); A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States (co-authored 2008), Back to Full Employment (2012), Green Growth (2014), Global Green Growth (2015) and Greening the Global Economy (2015).



transcript

Do higher wages cause inflation?PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. Joining us now is Robert Pollin. He's the cofounder and codirector of the PERI institute at the University of Massachusetts Amherst. Thanks for joining us again.

ROBERT POLLIN, PROF. ECONOMICS, PERI CODIRECTOR: Thank you, Paul.

JAY: So in some of the interviews we've done and some of the articles you've written, one of your proposals is for a big government jobs program at decent wages.

POLLIN: Right.

JAY: So retrofitting buildings, state projects for infrastructure and roads and such, at pretty serious levels—we're talking hundreds of thousands of jobs at good wages.

POLLIN: Millions of jobs.

JAY: Millions of jobs.

POLLIN: Yeah.

JAY: Well, millions of jobs at good wages, people will argue, will tend to raise wages generally in the economy, because the more desperate people are, the cheaper they work, and if there's this kind of a government program, people won't be as desperate. But the underlying issue here is, the critique is made that, if you wind up with all this job program, it will be inflationary because wages will go up. So the question is: do higher wages really lead to inflation?

POLLIN: No, they don't necessarily. What higher—lower unemployment does lead to workers having more bargaining power, and I would argue that's good, especially where we've been historically, where wages are roughly on average 10, 12 percent below where they were 38 years ago, in 1972, whereas the average productivity, what a worker produces in the course of a day, has almost doubled, is up 90 percent. So workers have not enjoyed any of the benefits of being more productive. So on those grounds, workers have taken a huge hit over two generations. And what about the inflationary effect? The only way higher wages can cause inflation is if the wages are rising faster than your ability to produce things, because otherwise the pie is getting bigger and workers are just getting their equal or maybe even a smaller share of a growing pie. It's only if the pie is not growing, and then the wages get bigger, and then businesses try to make up for the difference by raising the prices faster. And that's what's the inflationary part.

JAY: Well, the argument goes that if you're in a city where, say, you have an auto industry, and back in the days when autoworkers were making $28, and if the economy was really revved up and you had a lot of workers making, you know, decent salaries—more than, sometimes, decent salaries, in a sense, compared to, certainly, unorganized workers—but a merchant, a store, is going to sell as high as they possibly can. So if workers have more money, the prices will go up. And you talk to unorganized workers, and you hear them saying this: like, what's even the point of fighting for higher wages, 'cause as soon as you do, they're just going to charge you more anyway? It's not true?

POLLIN: Well, I mean, there's some point to it, but keep in mind that if the store is raising its prices and people are coming in and buying things at higher prices, that's good. That means that the market is buoyant. So the fact that you have more demand in the economy and that may be pushing up prices a little bit, modestly, there's really nothing wrong with it. It's actually positive. We should keep that in mind. So there's a big difference between, say, a 4 percent inflation rate, 3.5 percent inflation rate, due to rising demand. That's quite healthy. The unhealthy inflation is when you get these, like, basically, oil price increases shooting up really fast, and that causes a spiral: when oil prices go up, then everybody else tries to raise their prices. And the people that are getting the money out of this are the oil companies and the Arab oil producers and other oil producers. So the key thing is to distinguish between those two different kinds of inflation. And inflation due to strong overall markets, workers feeling good, workers willing to spend more, that's really positive as long as, you know, it's within control.

JAY: Well, isn't the other piece of this, which doesn't get talked about very much—let's say productivity is going up, wages start to go up. But there is another piece to this, which is profits, which is if a given company is going to sell this item, if the wages are going up, it may not necessarily lead to higher prices, but it may lead to less profit and more of that surplus going to wages and to profit.

POLLIN: Which is also healthy.

JAY: That doesn't get talked about much. It's always, always talked about as if it's only about inflation.

POLLIN: Right. I mean, look, inflation ultimately is a very simple thing: it's businesses raising their prices. It has actually, when you just talk about the inflation, inflation is businesses raising prices. Directly it has nothing to do with wages per se. So if businesses have higher wages, which means higher business costs, okay, right, they can also take a lower profit margin. And one of the things that we all know has happened over the last generation has been extreme increases in inequality, which means that profits have gone up dramatically relative to the average wage. So for there to be some basic adjustment downward towards more equality is a very favorable development that most people agree with.

JAY: So just finally, the wages have been more or less static, stagnant, since about the early '70s. And productivity's done what over the same period?

POLLIN: Roughly doubled.

JAY: More than doubled.

POLLIN: Yeah, yeah.

JAY: Thanks for joining us.

POLLIN: Okay. Thank you.

JAY: And thank you for joining us on The Real News Network.


more info



Comments

Our automatic spam filter blocks comments with multiple links and multiple users using the same IP address. Please make thoughtful comments with minimal links using only one user name. If you think your comment has been mistakenly removed please email us at contact@therealnews.com

latest stories

Colin Kaepernick's Protest Brings Attention to Racism in National Anthem
Are You Watching But Not Donating?
Chuck D and B-Real Are Making America Rage Again
This Political Scientist Says You Should Vote for the 'Lying Neoliberal Warmonger'
Time is Running Out - Help Us Expose the Koch Brothers' War on Climate Science
How EU Policies Have Fueled Economic Stagnation
Max Blumenthal on Je Ne Suis Pas Charlie
Is 'Our Revolution' the Way To Build Transformative Politics?
Chinese Foreign Minister's Visit Brings No Reset of India-China Relations
Former CIA Deputy Director Publicly Advocates for Bombing Syria's Assad
Why the G20 and Other Efforts to Address Tax Havens Are Failing
Islamophobia and the Politics of Empire - Deepa Kumar on Reality Asserts Itself (3/5)
Architects and Organizers of BDS Reflect on Global Success, Fate Within Canada
Sanders Launch of 'Our Revolution' a Step Forward and a Step Backwards
Paramilitaries Pose Threat to FARC-Colombia Peace Deal
Lack of Accountability Has Made Baltimore an Overpoliced Panopticon
Standing Rock Sioux Tribe Awaits Court Ruling On Dakota Access Oil Pipeline
Turkey's Incursion into Syria Will Escalate Conflict with the Kurds
How Disenchanted Democrats and Republicans Together Can Break the Two Party Duopoly
EpiPen Prices Soar Because Our Current System Can't Restrain Profit- Seeking Corporations
Baltimore Police Defend Secret Surveillance Program
Ending Segregation in Baltimore Will Take More Than Electing Black Politicians
The Real Scandal of Clinton's Emails: Conducting Foreign Policy In Secret
More Social Programs For Ex-Prisoners Would Lower Recidivism
How Ukrainian and Russian Elite Benefit From New Flare-ups at the Border
Standing Rock Sioux Tribe Fights North Dakota Oil Pipeline
Detroit Reverend: 'Electing a Democrat Doesn't Mean You Are Safe'
Baltimore Police Union Could Thwart Planned Civilian Oversight
Brazil Moving Towards Right-wing Foreign Policy
Matching Grant to Double Monthly Donations for One Year!

TheRealNewsNetwork.com, RealNewsNetwork.com, The Real News Network, Real News Network, The Real News, Real News, Real News For Real People, IWT are trademarks and service marks of Independent World Television inc. "The Real News" is the flagship show of IWT and The Real News Network.

All original content on this site is copyright of The Real News Network. Click here for more

Problems with this site? Please let us know

Linux VPS Hosting by Star Dot Hosting