Raising Salaries During Inflation Can Worsen Inflation
It's May 1 today and it's referred to as Labor Day. One of the many organizations in the Philippines called Kilusang Mayo Uno (May 1 Movement) has been doing the same nonsense all the time. Do these people even have the slightest idea of wealth generation? I doubt it. They have been demanding the same thing all over again. I wonder if these people are aware that it's not sustainable (read here). The same movement has been to have salary increases in the midst of inflation.
At first, it sounds like a good idea. However, the economic aspect will totally reveal why it isn't feasible. The Economics Help website presents why doing so can actually worsen inflation:
Wage Push Inflation. If labour is able to push for higher wages, despite lower growth, then we could get a combination of rising inflation, but slow growth. This is especially a problem if a country is part of the single currency. If wages rise, they become uncompetitive leading to lower demand. Therefore there is an unwelcome combination of rising prices, but lower growth. If countries were not in a single currency, the uncompetitiveness would lead to a depreciation in the exchange rate to restore competitiveness and increase demand.
The reality would be that basic accounting would defeat the argument. Every increase in salary means an additional cost to production. It's common sense that for a company to pay higher salaries--it must sell at a higher price to survive. Higher costs can be justifiable if there's good quality. It's like if I enjoyed a restaurant's good quality cooking and service--there's an extra cost to it. To sell lower when the prices are higher is selling at a loss. What do you expect from people who feel like economics is just so easy. They can talk that they will just do this and that. However, when asked for financial sources, they either fall silent, hurl insults or do anything stupid to hide their insecurities.
Since when did these labor unions know anything about economics? They have been against badly-needed foreign ownership laws that will bring the jobs they so demand. When they are asked how they propose to make jobs, I even doubt they have a feasible answer. One common answer I usually get is, "It's the government's job! Let them create the jobs!" True, government needs employees but it's private enterprises that fund government spending (read here). The government should make policies that encourage job creation. Among them is the removal of the Filipino First Policy (read why here). Yet, they demand the government uphold Filipino First Policy while they still demand jobs.
These guys just shout and shout with no solutions whatsoever. As the saying goes, "Empty vessels make the most noise."
