How can labour market reform effect the inflation rate?
This is not a stupid question – it’s a very good one. I’m not going to write a treatise here, but basically the question is getting at the effects unionized labor (or highly regulated labor) has on inflation. Inflation (in modern terms) is when prices go higher – a little inflation is good, too much is bad… really bad. If labor is highly regulated or if unions have a very tight grip on power, the supply of workers can be made scarce, or workers can have such power that they demand large wage increases. If your entire economy is dominated by unions, you’ll get a massive increase in wages, which essentially makes two things happen 1) Makes the consumers (the workers) have more money in their pockets and 2) Costs the companies a tremendous amount more money (because labor costs are almost always the largest expense of a company) When consumers have more money in their pockets, they do what consumers know how to do… namely spend it. They buy clothes, TVs, whatever. When companies are f
