‘Don’t ask for a pay rise, workers are told’ was the headline in the Times (4 February) referring to the Governor of the Bank of England, Andrew Bailey, who had said. ‘While it will be ‘painful’ for workers to accept prices would rise faster than wages, some moderation of wage rises is needed to prevent inflation becoming entrenched.’
According to the Independent:
‘Mr Bailey, who is paid around £500,000 per year, reiterated his assertion that workers should show ‘restraint’ when asking for salary increases. The governor encouraged companies not to give staff big pay rises, warning it could lead to a spiral of higher prices being followed by higher wages, pushing inflation higher’ (bit.ly/3sCFkBH).
The assumption here is that wage increases can spark off a ‘wage-price spiral’, but wages are a price and go up with the prices of what workers need to consume to recreate and maintain their labour-power. Wages follow prices, not vice versa. So, if you want to talk about a spiral, ‘price-wage spiral’ would be more accurate.
The February report of the Monetary Policy Committee of the Bank of England that Bailey was commenting on estimated that, due to the increase in price of gas and some other imported goods, by April the annual rate of increase of the Consumer Price Index will be 7.25 percent. The Times again:
‘The last time that inflation reached the levels forecast for April this year was in 1991, when it hit 7.9 per cent. The committee expects inflation still to be above 5 per cent in a year’s time. People will face the worst hit to real incomes since comparable records began in 1990 as take-home pay falls by five times the amount it did during the 2008 financial crisis.’
The report also pointed out that, with unemployment comparatively low at 3.8 percent, there is a ‘tight’ labour market.
All this means that workers both need a compensatory wage increase and are in a good bargaining position to get one. So why shouldn’t they go for it? They would be mugs (or masochists) not to. So good luck to them.
It is significant that, while the Governor told workers not to ask for a wage increase to cover the rise in prices (ie, to accept a cut in their real wages), he did not ask those capitalist employers in a position to do so, not to increase their prices (ie, to accept a cut in profits).
The effect of workers not getting a wage increase would be to increase profits. Maybe this is what Bailey had in mind. More likely, however, is that he really believes that wage increases can cause prices to rise and that wage restraint can prevent ‘inflation’.
These days (as in the quote above from the Times) ‘inflation’ has come to mean any increase in the level of prices as measured by such indexes as the CPI. But this fails to distinguish between two different ways in which this can happen. One is classic inflation where the monetary authority issues more money than is required by the economy, ie, over-issues, or ‘inflates,’ it. The other is when the index goes up due to an increase in the price of some key good (as currently gas) or in the prices of a whole range of goods. The Bank of England is in fact charged with trying to ensure that prices go up by around 2 percent a year, ie, that real wages go down by that amount, other things being equal.
For socialists there is a wider question. Why is there a ‘cost of living’? Why do we have to pay for the things we need to live?
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