wage-price spiral
An economic phenomenon where rising wages lead to higher prices, which in turn lead to demands for higher wages — creating a self-reinforcing inflationary cycle.
Example
“The 1970s wage-price spiral saw unions win 10% raises that pushed up costs, forcing companies to raise prices, prompting further wage demands.”
Memory Tip
WAGE-PRICE SPIRAL = wages → higher prices → more wages demanded → higher prices. A dangerous loop.
Why It Matters
Understanding wage-price spirals helps you anticipate inflation periods that erode your savings and purchasing power. If you recognize when an economy is entering this cycle, you can make better decisions about locking in fixed-rate loans, adjusting investments, or negotiating salary increases before prices climb higher.
Common Misconception
Many people believe wage increases are always good for workers, but in a wage-price spiral the purchasing power gains from higher wages get cancelled out by rising prices. Workers end up running faster just to stay in the same place financially, which is why this cycle ultimately benefits no one.
In Practice
In the 1970s, workers demanded 10 percent wage increases due to rising costs, which forced companies to raise prices by 8 percent to maintain profits. These higher prices then prompted another round of wage demands, and the cycle repeated, with inflation eventually reaching double digits while real wages stagnated.
Etymology
WAGE (worker compensation) PRICE (consumer costs) SPIRAL (self-reinforcing cycle). Wages and prices chasing each other in an upward SPIRAL.
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