Wages and a Rising Price Level: An Approach to a Comparative Study of the Movements of the Wage and Retail Price indices in New Zealand 1933-1951

Abstract

In modern countries the adjustment of wage rates to the inflation of the price level is a matter of national importance. In its microscopic form the problem arises because the wage received by an individual is the result of a contract made in the past, whereas this same wage must be used to buy a multitude of commodities at the prices ruling when he receives it. Despite the attention the matter has received, as yet no wage rate has proved to be as readily responsive to inflation as consumer prices. There is always an involved process of bargaining to be gone through which does not commence until after prices have first risen. No matter how wages are fixed, the fact remains that they must satisfy wage earners until they can be readjusted by whatever machinery is available. In its macroscopic aspects the problem is one of equitably distributing the national income. The fact that in most countries the wage earners and their dependents form a considerable portion of the population means that at a time when the real value of wages is falling, the loss of their purchasing power brings widespread hardship. Not only is an equitable distribution of purchasing power necessary for a high standard of economic welfare but also dissatisfaction amongst those who are dependent upon wages for their livelihood may congeal into a pressure group so strong, both numerically and morally, that the accepted institutions of democracy may fall before it. Therefore, if social as well as economic stability is a desirable end, it must be ensured that the general level of wages measured in money terms is never allowed to lag behind, or at least, not too far behind that general level of prices which may be loosely referred to as the cost of living.