In recent years, the global economy has faced continuously rising inflation rates, yet wage growth has failed to keep pace with soaring prices. This imbalance has put immense financial pressure on many people, especially low-income groups. While some workers in high-paying industries have benefited from salary increases and bonuses, the rapid rise in prices has been steadily eroding the real purchasing power of wages for most workers. As a result, the rising cost of living has become a major challenge for many households, making it a pressing issue for policymakers worldwide.

The Relationship Between Inflation and Wage Growth：

According to economic theory, low unemployment rates typically lead to wage increases, as a tight labor market forces employers to raise salaries to attract and retain workers. This phenomenon is the basis of the Phillips Curve. However, in recent years, prices and wages appear to have become disconnected. Although unemployment remains low, real wages have failed to keep pace with inflation.In other words, although job opportunities have increased, high living costs have prevented workers’ real incomes from rising accordingly. This reveals a crucial issue: the availability of jobs does not necessarily translate into a higher standard of living.

Reasons for Slow Wage Growth：

Since the 2007 global financial crisis, wage growth has remained sluggish. After the crisis, real wages declined, and although they rebounded somewhat from 2012 as inflation slowed, wage increases have still not returned to pre-crisis levels. Several factors contribute to this situation:

1. Decline in Union Power

Compared to the labor movements of the 1970s, today’s workers find it much harder to demand higher wages through unions or collective bargaining. Most employees are at a disadvantage when negotiating with companies, and switching jobs is often a more effective way to secure a higher salary. As corporations gain more market power, many businesses have seen significant profit growth, but worker wages have not increased at the same rate, widening the income gap.

2. Hidden Unemployment Issues

Despite low official unemployment rates, certain forms of unemployment remain unaccounted for in statistics. For example, some individuals receiving unemployment benefits may still be capable and willing to work but are excluded from unemployment data due to a lack of suitable job opportunities. Additionally, the exit of older workers from the labor force reflects economic inactivity, revealing the true state of the labor market.

3. Wage Inflation Lag Effect

While wage growth may lag behind rising prices, some economists argue that over time, wages will eventually catch up with inflation. Andrew Bailey, Governor of the Bank of England, suggested that wage increases might outpace inflation in the long run. However, economic downturns and rising unemployment could suppress wage growth during this process.

Policy Responses and Their Effectiveness：

In response to inflation, numerous central banks have increased interest rates and adopted tighter monetary policies. However, monetary tightening alone has not effectively curbed price pressures and may even exacerbate economic recessions. The Bank of England predicts that inflation could reach around 10% in the coming months, but whether interest rate hikes are sufficient to address the current economic challenges remains uncertain.

In response to persistently high inflation, governments have started providing financial assistance to low-income groups. With energy bills soaring, policies such as direct subsidies and windfall taxes have emerged as temporary solutions to the cost-of-living crisis. However, these measures are often short-term. If energy prices continue to rise, it is unclear whether governments can maintain such financial support.

Moreover, direct cash subsidies alone cannot fundamentally solve the problem of slow wage growth. If workers had stronger bargaining power, wage growth could align more closely with price increases. Thus, restoring workers’ ability to negotiate for better pay has become a key policy objective.

How to Strengthen Workers’ Bargaining Power？

To accelerate wage growth, the labor market structure must be fundamentally improved. This requires systemic reforms, including:

1. Strengthening unions: Enhancing the role of unions can enable workers to negotiate collectively for fair wages.

2. Corporate governance reforms: Giving employees more influence in company decision-making to ensure they benefit from corporate growth.

3. Promoting income redistribution: Adjusting tax policies to reduce income inequality and ensure basic financial security for low-income groups.

Only by addressing power imbalances in the labor market can wages truly rise, allowing economic growth to benefit all workers and fostering sustainable development.

Conclusion

As the global economy faces numerous challenges, the conflict between inflation and wage growth has become an urgent issue. Sustainable solutions require economic structural reforms, stronger worker bargaining power, and effective policy adjustments. Only then can the benefits of economic growth be distributed fairly among all people, rather than concentrated in the hands of a few.