Assume the following information is relevant for an advanced economy over a three-year period.?

Year-Increase Price in Index-Increase in Labor Productitvity


1 167 4%


2 174 3%


3 181 2.5%








IndustrialProduction-Average Unemplyment Rate-Hr. Wage


4% 4.5% $6


2% 5.2% $6.50


1.5% 5.8% $7.10|||I can't see anything bad in this figures. Actually everything depends on wages starting point and changes in MPC in some sense. Of course it's obvious that productivity grows slower than real wages which consequently leads to higher unemployment rates as classical analysis suggests. But it only from the first view. For instance if in closest countries wage levels already twice higher then wage-increase could be much faster than evidence suggests - overvise labor migration could arise (due to differences in incomes and/or social conditions) - labor in open economies is the same resource as capital (take for instance labor mobility in European Union, there almost no any barriers left). It can also just show that capital becomes cheaper and labor more expensive (remember MPC/r=MPL/W equation?).





And yes it's true, it seems like purchasing power is rising (so does internal demand), but there is no data about market structures (if they are highly monopolized and uncontrolled - then inflation could rise due to monopolies, not because of higher demand - it's hard to decide with only data you provided) - so "cost-push inflation" is not evident (wages could be spent on investment instead of consumption and consumption could be due to previous obligations like pensions or credits, or it could be consumption made by non-residents - so more research on sources required). Some extra indicators should be used to make comparative analysis (except if this system is closed economy). Overvise wrong conclusions and following "supply-side economics" tools may be done by the cost of "demand-side" that in long-term will lead to disastrous effect on social condition and total population (demographic changes).


Limiting wages or increasing taxes or subsidies businesses etc. other methods can play a bad joke over the long-run due to wrong analysis. Yeah politics are jammed in such trap. Usually in ideal system social wealth-fare is followed (better income distribution, health-care, etc.) more than business-productivity-inflation staff.





So: conclusion is - there is no enough data available.