Inflation? Bring It On. Workers Could Actually Benefit.

Inflation? Bring It On. Workers Could Actually Benefit.
Economics textbooks tell us that when the unemployment rate falls below standard measures of full employment (4.7 percent, according to the Congressional Budget Office) the “wage-price
spiral” starts to take effect: Companies start paying more to find scarce workers, those higher wages necessitate higher prices and inflation soon becomes a nasty problem.
It may be because greater international competition keeps prices down; because the decline of union contracts means
that fewer companies give automatic cost-of-living adjustments; because consumers can compare prices so easily on the internet; because oil prices have fallen recently; or simply because, after years of low inflation, people expect price increases to be limited.
Discouraged workers — the millions who’ve left the labor force — might actually re-enter it,
and workers could find their shrinking share of national income rise again
But, as is too often the case when workers finally start to see some of the benefits of growth, economists are warning
that higher wages will lead to inflation, and they’re calling for the Federal Reserve Board to hit the brakes by raising interest rates.
Businesses, desperate for workers, reach deeper into the ranks of those who are still jobless, do more training to get those workers up to speed,
and pay higher wages as they compete to hire or retain their work force.
Even if prices did rise, my hypothesis is that the benefits, especially for those who haven’t
gained from economic growth in recent years, would exceed the costs of higher inflation.
But recent experience has shown us that the economy can operate at low levels of unemployment
— even lower than “full employment” — without inflation becoming a serious problem.