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BBC ITN "wage inflation" lies

paul m | 25.01.2007 12:02 | Analysis | Workers' Movements

"Wage inflation" is poor economics but splendid propaganda!

As we all should know by now inflation is a monetary phenomena and the distribution of the output into wage and profits is a real phenomena. In a deregulated labour market the individual workers do not make "wage demands" or "bargain". They take whatever wage is offered. If money wages rise it is because they are bid up. Profits are not a markup on wages and the price of a commodity is not arrived at by adding profits onto money wages. The price of a commodity is broken down into real wages and real profits according to the famous marginal productivity theory.The general price level is not calculated by adding together the individual prices. The real ie relative prices of commodities change all the time whatever the rate of inflation happens to be.The cost push propagandist merely seeks out the commodities whose relative price have risen and then explains the rise in the general price level as being caused by the rise in the price of this or that commodity. There is no inflation caused by the rise in the oil price because the price of oil is a relative price ie the price of oil relative to other prices. There is no cost push inflation-prices are only ever pulled up by an excessive increase in the stock of money. The market clearing money wage will be bid up by the capitalists when there has been inflation because there has already been a rise in the stock of money and inflation. Here money wages have lagged and the real wage has fallen below the marginal product of labour and capitalists will scream they are "short" of labour as they will be when paying less than the value of the marginal product of labour. This is a rise in money wages following the rise in prices with wage profit fraction unchanged."If there is an inflation in a country where there are trade unions then the inflation will be blamed on the unions. If there is an inflation in a country where there are no unions then the inflation will be blamed on the price of oil, sugar etc. Inflation is always and everywhere a monetary phenomena"-M Friedman. "if the capitalists could put up their prices whenever they so chose then they would do so anyway whether wages had risen or not"-K Marx. Another reason for a rise in the money wage is that there has been a change in the marginal product of labour and this needs to be followed by a change in the wage profit fraction of the output ie wages may rise faster than inflation plus productivity. The wage profit fraction of the output is not fixed.The wage fraction has been falling in all western countries in the last twenty years ie money wages have been rising by less than inflation plus productivity. If the wage fraction can fall then it can rise too. We are never told of a "profit inflation" or a top salary inflation-no the inflation causing abilities are attributed to the little people alone the people whose part of the pie is shrinking. The standard propaganda line of BBC-ITN set piece "wage inflation" stories has many variants. 1 money wages are compared to the rate of inflation and productivity is overlooked. The worker here is told his real wage is fixed and at most he should be compensated for the rise in the cost of living (fall in the value of money). Greedy unions make pay "demands" and companies are "forced" to raise their prices. You've seen this story a million times. What's that you say about the abolition of unions? The language is still the same-pay deals, wage negotiatons, wage rounds. ITN in the 1970s had a chart showing money wages and prices and the viewer learned the rise in prices was caused by the rise in wages. 2 the money wage is compared to productivity and the inflation rate is overlooked. This is a good one ! The worker here is told he must work harder to buy what he bought last year. We have stories here about productivity deals.The worker may have a small real wage rise in return for a bigger productivity rise. Some deal!3 the money wage is compared to inflation plus productivity. We are told here of the fixity of the wage fraction of the output (this propaganda line usually comes in a period after the wage fraction has fallen eg the UK in the late 1990s).In the 1970s we had the analogy of the national "pie" where the workers share was too large and inflation was caused by the pesky workers trying to increase it. One must not take ruling class propaganda too seriously. The "wage inflation" line is such splendid propaganda it will be run at all times and places.

paul m

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