There Are No Such Things as Transitory or Limited Wage Hikes – By NEIL SISKIND

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A labor supply crunch is forcing employers to pay higher wages. “No sweat”, says the Fed. “It’s transitory”.

But can wages even be transitory- or limited to just a few people? 

Inflation can be transitory- but wage hikes are forever … and for everyone.
 
 Higher wages beget higher wages because: 

i. Once wages go higher, they don’t go lower;
ii. if one company raises wages to attract labor, its competitors will have to do the same. If Amazon offers more money, Walmart will have to offer more money; 
iii. if future employees know about the new higher wages, they will want the same wage that those existing employees are being paid; 
iv. if existing employees know about new employees’ wages, they will demand the same wage that new employees have been given- or else employers will create jealousy, resentment, and a mutiny by the crew. 
 
Would it really be feasible for businesses, like restaurants and retail stores, to have a class of employees walking around, day-in and day-out, making more money that their associates handling the same duties and tasks?

For businesses and investors, the Fed’s explanation that the paying of higher wages will only be necessary for a transitory period of time and for only a limited number of people may be very comforting … 
 
but it’s impossible.  

As for inflation, it’s not as if higher prices are always bad- as long as there are higher wages to pay them (and as long as there is no inflation spiral). If a hamburger is 25 cents more, its okay, as long as you are making 25 cents more an hour. The problem is when you have cost-push (as opposed to demand-pull) inflation, from wages or commodities, leading the charge, you better be sure that the consumer accepts your higher prices- or else you get layoffs. This is true even if higher wages are the cost-push impulse. Consumers will still decide which products and services will get the extra dollars. Just because you pay higher wages does not mean that your company’s product or service is the kind that can command a higher price. This is why demand, not short supply, should, properly, always be the inflation impulse. Businesses should see consumer prices rise before they commit to higher input expenses.

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