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asked ago in General Economics Questions by (120 points)
I recall learning at one point or another that after economic shocks the economy may return to efficient levels, but wage prices will be "sticky." Generally as a feeling, this seems to be our present situation (2018). Ten years on from the "Great Deleveraging" (as Dalio says) the economy is reportedly strong, but wages remain low and stuck on the bottom. My expectation would be that we are entering a period where these wages will increase, but it's hard to imagine what this might actually look like in the real world. Inflation? I'm curious what others might think about this idea, and I am curious to discuss with you what might happen next.

2 Answers

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answered ago by (930 points)
One thing to consider is that prices can change much faster than in the past. Computers can sense increased demand from spending levels much faster and than increase prices much faster. So it is harder to get a lag between higher wages and higher prices. Thus, real wages will tend to grow more slowly than before.
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answered ago by (2.7k points)
In my opinion, the US are getting a high level of business activity and the productivity should tend to be higher. If wages don't tend to increase their level, the supply won't be covered by the demand. It can cause the increase of prices because the revenue will decrease, producing a slump in the economy because the wages don't allow to consume the goods produced. That would create stagflation. The other option is that the prices tend to decrease because the comsumption is too low. In this case if there is not a rise in the productivity it could be good for the consumers but if there is a rise in the productivity a lot of workers will lose their jobs leading to unemployment to rise destroying consumption and making imposible to mantain the revenue lowering prices.

If wages are not so sticky and they tend to rise what I think it's happening now. The consumption will increase but it will lead to a rise in prices if there is not a cure for this factor. The companies will not lose the option of earn the same or bigger profit, in a situation of rising wages and consumption.

In my opinion, we have to increase wages and bet for a better domestic consume trying to maintain the prices stable. But in the reality from my point of view we are reaching the peak and the increase of wages and prices before the slump will be called the cause of it. The austerity is placed over a large number of nations much more with an increasing debt and the low wages and lowcosting production are being a main topic on European countries or Latinamerican countries with problems. Sticky wages, long workdays, and low-quality products. We have to solve the situation and I think that increase wages and increase consumption it's the right way.

It's only my opinion.