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In the News

Are higher wages to blame for fast rising prices?

Graham Watson

18th December 2022

Phillip Inman writes in the Observer about the notion being put about by the Chancellor and the Bank of England, arguing that wage settlements are in danger of sustaining inflation. But how true is it given that many people have operated on the basis that when pay increases get above 4% this triggers inflation?

Whilst there have been some instances of workers securing sizeable wage increases, notably Aldi warehouse workers and East Midlands airport security staff - who got a 17% increase. And yet, whilst there's still wage growth, average wages are rising by 6%, well below the 10.7% that inflation is rising at, so what happening?

Interestingly, some people are asserting that one of the reasons for inflation has been the fact that firms have taken the chance to boost their profit margins, something that is supported by empirical evidence from both the US and the UK

We have blogged about profit-push inflation here

Andy Beckett writing in the Guardian argues that the current state of industrial relations might signify a tipping point in UK economic history, suggesting that the call for higher wages might mean that, once and for all, we are becoming a higher wage nation.

There's also an interesting aside about income distribution - with the author noting that the share of national income going to labour is lower in the UK than many other comparable economies.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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