I understand that there are shareholders and costs increase, but surely the cost increases should be at the rate of inflation?
I know a load of companies increase by like 3.9% + Inflation every year – so why is it that when employees get pay rises they’ll always be less than the rate of inflation?
Doesn’t that just mean employees get poorer every time? Where does the extra 3.9% money actually go? Where does the difference between employees payrises and rate of inflation go?
Are all companies just screwing their employees or is there some other reason I’m not realizing?
In: Economics
if everyone’s salary is inflation adjusted, then inflation will become rampant leading to insane salaries and even more insane inflation. That said, yes, you effectively lose purchasing power when this happens.
However, let’s be clear. Lots of people have fixed debt. Inflation is a godsend to you if you’re paying off your mortgage or student loans for example.
Let’s say everyone suddenly makes 1000x their current salary, but prices go up 1000x. Off hand, you’re neutral right?
Except you’re not. If you’re cash heavy, all your savings become 1/1000th of what they were. Having $10k in the bank doesn’t go as far to buy food when your $200 grocery bill suddenly becomes $200,000 does it? But the fact that you’re $80k job is now paying $80M offsets it. Your savings takes a hit, but your monthly budget is neutral.
However, if you have a mortgage or student loans, your debt doesn’t go up because of inflation. Even if you have old CC debt, that won’t go up because of inflation. Suddenly your $200k mortgage seems like nothing when you’re making $80M a year, right?
So yes, you lose purchasing power when you get a raise below the rate of inflation, but it doesn’t mean you’re worse off.
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