Sometimes we read things and we get that gut feeling that we are being subtly manipulated. Economics is of course full of this subtle manipulation. Words like “choice”, and “efficiency” and even phrases like “free trade,” “efficient markets” and my favourite “the natural rate of X” have a very specific meaning in neoclassical economics which do not not have much connection to what the layperson might think they mean. What is curious about the above terms is that they all lead the layperson in the right ideological direction even if they (the layperson) have no idea what the terms really mean in economic practice.
To my mind one of the most egregious ‘tells’ is the phrase “wage inflation.” Here even the pedigree of the phrase is suspect. In economics the word inflation is generally reserved to refer to an increase in the price level. If just one good rises in price what we have is a relative shift in prices. Sometimes when, for example, we disaggregate inflation data we talk about the relative contribution of specific items like food, and energy to the overall measure of inflation. But to talk of wage inflation is just bizarre. Economists do not talk about profit inflation; so why would we talk about wage inflation? The only reason I can come up with is that when an economist does talk about wage inflation they are either too ignorant to bother listening to, or too biased to bother taking seriously. There is the third possibility that they think inflation is anywhere and everywhere a function of wage increases which normally goes by the name of a wage cost push theory of inflation. So the third is really an expression of the soft bigotry that comes from being too biased.
Lest anyone think I am making up false examples or hitting at straw men just click on this document. Here an economist talks specifically about “wage inflation” in Newfoundland and Labrador. Now I am sure he is a fine economist but why would Mr. Locke talk about wage inflation? If he were simply unbiased but confused about what the word inflation meant why would he choose to not also talk about profit inflation? Indeed, in 2008 profits as a percent of wages were running at 125%. The decadal average was over 70% whereas the national average was around 25%. If anything it sounds more like a case of profit push inflation but then again Newfoundland and Labrador do not have an inflation problem: prices rose on average 2.45. So why talk about inflation at all? Even more embarrassingly Mr. Locke’s own graph plots wages in Newfoundland and Labrador as a percent of the Canadian average. His stellar proof (p.10) that wages are the cause of an almost non-existent general rise in the price level in Newfoundland and Labrador is that wages in the province have risen to less than 95% of the national average.
The only answer I can come up with is that in such a context the use of the word “inflation” after the word “wages” is designed to tell the reader that increasing wages are BAD. Why is it bad? Because inflation is BAD. And not as in Michael Jackson’s Bad, but you know BAD.
In any case when you read the phrase “wage inflation” stop reading and do something more intellectually rewarding like cleaning your toilet. And as you watch the water rise in your bowl ask your partner to come in and watch the “inflation” in the water level. At least with specific reference to the general level of water in your toilet bowl you will be on safer linguistic and scientific ground than talking about wage inflation.