Do Wage Rises Cause Inflation?

But, some people might claim, high wages cause more inflation! Others might also argue that the Government has not attacked just the unions, but the drivers' employers as well. To answer the first of these charges, it is useful to look briefly at the second.

The penalty imposed on the drivers' employers is that they cannot pass on the increased wage bill in their prices. In other words, the tension is not between wages and prices, as we are often led to believe, but between wages and profits. To put it more simply, it is between the interests of the workers and the interests of the bosses.

In fact, this is always the case. The fact that the employers usually safeguard their individual interests by increasing their prices merely serves to disguise the real situation. Higher wages do not actually cause inflation. Rather, it is the employers' continual drive to increase their profits that gives real impetus to the spiral.

But if the Government is acting in the interests of the employers, why did it impose restrictions on the drivers' employers as well? The answer is that the Government acts in the interests of the employers as a whole. The drivers' employers may be in a better position than some other employers to safeguard their profits while accepting the 11 % award increase in wages.

More importantly, the Drivers' Union is a more militant union than many others and is therefore able to obtain higher settlements than those the others could get. When Muldoon tries to isolate militant unions from the rest, he does so because he knows that the employers' interests would be better served if the militant unions were not acting in a proxy manner for the others.