Wage-Price Spiral

What is 'Wage-Price Spiral'

Wage-price spiral is a macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. The wage-price sprial suggests that rising wages increase disposable income, thus raising the demand for goods and causing prices to rise. Rising prices cause demand for higher wages, which leads to higher production costs and further upward pressure on prices.

BREAKING DOWN 'Wage-Price Spiral'

The wage-price spiral is one concept that deals with the causes and consequences of inflation, and it is most popular in Keynesian economic theory. It is also known as the "cost-push" origin of inflation. Another cause of inflation is known as "demand-pull" inflation, which monetary theorists believe originates with the money supply.

RELATED TERMS
  1. Wage Push Inflation

    A general increase in the cost of goods that is preceded by and ...
  2. Sticky Wage Theory

    An economic hypothesis theorizing that pay of employees tends ...
  3. Demand Theory

    A theory relating to the relationship between consumer demand ...
  4. Minimum Wage

    The minimum amount of compensation an employee must receive for ...
  5. National Average Wage Index - NAWI

    An index calculated annually by the Social Security Administration ...
  6. Cash Wages

    Cash wages include any kind of compensation that comes in the ...
Related Articles
  1. Retirement

    Inflation: What Is Inflation?

    Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys ...
  2. Entrepreneurship

    Cost-Push Inflation Versus Demand-Pull Inflation

    Gain a deeper understanding of aggregate supply and demand, forces which raise the price of goods and services.
  3. Economics

    Cost-Push Inflation Versus Demand-Pull Inflation

    Do you remember how much less you paid for things ten years ago? That’s inflation at work.
  4. Personal Finance

    Will You See Higher Wages In 2015?

    It's been a few years into the economic recovery from the Great Recession, and the employment picture has been rocky.
  5. Economics

    Explaining Demand-Pull Inflation

    In demand-pull inflation, the demand for goods increases ahead of the supply.
  6. Savings

    Inflation for Dummies

    Inflation may seem like a straightforward concept, but it is more complex than it appears. We examine its varieties and causes.
  7. Retirement

    Inflation: Conclusion

    After reading this tutorial, you should have some insight into inflation and its effects. For starters, you now know that inflation isn't intrinsically good or bad. Like so many things in life, ...
  8. Investing Basics

    Inflation's Impact On Stock Returns

    When stocks are divided into growth and value categories, the evidence is clear that value stocks perform better in periods of high inflation, and growth stocks perform better during periods ...
  9. Investing

    Is it Time to Prepare for Inflation?

    While U.S. inflation remains at historic lows, it has ticked up recently, leaving many investors fearing rising prices.
  10. Economics

    Minimum Wages Can Raise Unemployment

    Learn why many economists feel that minimum wages, while intended to benefit low-wage workers, actually hurt them by increasing unemployment.
RELATED FAQS
  1. How does wage price spiral impact interest rates?

    Learn how a wage-price spiral and interest rates are related. The most effective method for stopping an inflationary spiral ... Read Answer >>
  2. How does money supply affect inflation?

    Learn about two competing economic theories of the role of the money supply and whether money supply necessarily causes inflation ... Read Answer >>
  3. What is the correlation between inflation and interest rate risk?

    Learn about the correlation between inflation and interest rate risk. Central banks raise interest rates when inflation becomes ... Read Answer >>
  4. How do I differentiate between micro and macro economics?

    Differentiating between microeconomics and macroeconomics is primarily concerned with the difference of the scales of the ... Read Answer >>
  5. What impact does inflation and deflation have on a blue-chip stock value?

    Learn how inflation and deflation affect the value of blue-chip stocks, and why investing in blue chips can stabilize your ... Read Answer >>
  6. What is the relationship between inflation and interest rates?

    Inflation and interest rates are linked, and frequently referenced in macroeconomics. Inflation refers to the rate at which ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center