It has been suggested that a strong economy will raise wages for all. However, I suspect that this can occur in only a few ways.

First, assume that the wealth distribution in the U.S. is such that a few people have much of the wealth. For the middle class to become wealthier (i.e. they have more disposable income compared to their expenses)

  1. Wealthy must purchase goods / services such that their wealth diminishes and the money exchanged goes to the middle class (e.g. shine my shoes and you'll get my money)
  2. Wealthy must be taxed and income redistributed to the middle class by tax credits / offsets / reductions in income taxes
  3. Money supply must be increased (e.g. prime rate goes down) and the middle class takes out the loans at a lower interest rate and therefore the money is supplied to the middle class
  4. Inflation occurs such that the wages of the middle class grows faster than the prices of goods / services consumed by the middle class
  5. The middle class sells goods / services to other countries such that the middle class receives money from outside the country

A few things do not seem to increase wages of the middle class

  • Changing jobs types without a change in wages. For example, if people change jobs from retail sales to accounting and do not change their salary, then there is no gain in wealth.
  • Efficiency changes in the economy with a net zero change in the average wage. For example, there is an increase in efficiency in healthcare so the number of workers decreases, but those people just change jobs to become human resources workers with the same wages.
  • Increase in wages of the middle class with a commensurate increase in inflation.

A few more assumptions: - Federal economic policy is to always avoid deflation, then static wages can never result in an increase in wealth.
- Mild inflation is perceived as good in the U.S. economy - The U.S. is a consumer based economy, so there is an incentive to purchase goods / services as opposed to saving money

Therefore, is there any way for the overall middle class to increase its wealth without wages increasing at a rate faster than inflation?

As a corollary, isn't it impossible for wealth in the middle class to increase based solely based upon economic efficiency? Isn't it true that increasing the efficiency of goods / services will not increase wealth because the overall price of goods / services (total combined food / fuel / housing / healthcare / services) cannot go down in the U.S. economy en masse because federal monetary policy discourages deflation?


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.