In mainstream media accounts, the relationship between higher wages for workers (“wage pressure” or “labor costs”) and inflation is simple and certain—as when the New York Times flatly reports (6/5/98) the “concern among investors” that “inflation could increase this year because of rising wage pressures.”
A typical story (Boston Globe, 4/5/98) explains that “businesses react to tight labor markets by raising wages, which in turn can force them to raise prices and spark inflation.” Or in the Orlando Sentinel’s version (6/7/98), “fewer unemployed workers means job-seekers can demand higher wages. That in turn causes companies to hike prices, starting the inflation spiral.”
The implication of these mechanistic descriptions is that paying even a few pennies more to employees leaves corporations with no choice but to pass on any increased costs to consumers in the form of higher prices. Obscured in these explanations is the fact that employers have other options, including reducing the profit rates for shareholders—rates that have soared in recent years.
Even hints that employers have some choice in the matter are extremely rare, found almost between the lines of accounts like this one in the San Francisco Chronicle (5/18/98): “In extremely tight labor markets, employers may bid up workers’ wages and then try passing on their labor costs in the form of higher prices.” If they fail in that attempt, they would have to lower profits—a possibility that corporate-dominated news outlets seem to find too horrifying even to mention.
The truth is that even when wages are driven through the floor, as when companies like Nike and Reebok move from country to country in Asia in search of lower “labor costs,” the price of the sneaker still rises. But to mainstream media, it’s never corporate greed, just wages, that threaten to “spark inflation.”
This story is a sidebar to "Inflated Fears of Full Employment."