Comment by kgwgk
9 years ago
What he says is that high inflation makes posible for real wages to adjust (without cutting nominal wages) when such an adjustment is required. The price of labor fluctuates as the price of everything else, including capital, and when there is unemployment (lower demand of labor) wages would need to go down but they are “sticky”. These are cyclical adjustments.
And that mechanism doesn't work, unless their salaries don't keep up with inflation. Notably, this relationship is asymmetric, since there is no corresponding way to increase labor wages without giving a pay raise.
Salaries can grow faster than inflation at other times, keeping them aligned over the long term.
you've never been poor, have you?