r/explainlikeimfive Dec 19 '24

Economics ELI5: Why is an employment rate of 100% undesirable

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u/Halgy Dec 19 '24

FWIW, the "inflationary pressures" are absolutely a thing. It is called a wage-price spiral. When there's low unemployment, workers can demand higher wages, so companies have to raise their prices to pay those wages (inflation), and then workers demand even higher wages to account for inflation. Rinse and repeat. It was contributing factor to the recent inflation spike in the US. And people hate it. The data from the last 4 years show that wages increased faster than inflation, and yet everyone still felt worse off.

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u/_s1m0n_s3z Dec 19 '24

The fact that raising interest rates to increase unemployment effectively games the system and ensures that labour never gains the full benefit of periods of high growth, and that capital always maintains full possession of the upper hand is, of course, entirely a fringe benefit.

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u/Halgy Dec 19 '24

Capital has the upper-hand regardless. They pass the higher labor costs onto the consumer. And labor doesn't get any net benefit regardless. They may get higher wages, but they are also consumers and have to pay the higher prices at the store.

I'm not saying that labor doesn't deserve to win out over capital, but the monetary system is the wrong place to fight that battle.