Topic: Deflation: Wage rates and the employee VS the Employer - page 2. (Read 5725 times)

Why do you think that standard of living adjustments can only go in one direction?

Your right, 2 years later $55,000 wouldn't be as much. So it has become very common place to have standard of living adjustments while working at companies currently.

And I don't think you are understanding what I am saying. In order to combat deflation companies would either need to adjust your pay, (pay you less every year) or fire you and hire someone new for less money. If you read my original question I give the example of, if someone pays you 10 bucks an hour and inflation hits at 10% a year. Why, in 10 years time, wouldn't your employer fire you and hire 10 other people at 1 dollar an hour? The only other option for the employer that I can think of is it would be common place to pass out a standard of living adjustment and pay you less every year. That or labor would start to get underpaid in order to counter act deflation and keep employees. Either way it doesn't promote employment longevity and job stability. It seems to be the same problem as inflation just in reverse. 

They wouldn't be living with pay decreases. If I pay one week with 50 one dollar bills and the next day with one 50 dollar bill, has your pay decreased because you received fewer dollars?

There is no reason job stability would suffer. You can make the same argument in an inflationary economy and it's equally wrong. Here it goes: "Suppose I get a job for $55,000 per year. Two years later, due to inflation, I'm not being paid enough. So unless my boss is willing to raise my salary, I'll take a new job for a higher wage. So job stability will suffer due to inflation." But we all know that's not right. Both participants have an incentive to restore the wage to market value.

I'm not arguing that it would be a tough sell, though I do think that's a PR problem when trying to sell this idea. I am asking if job stability would suffer in a deflationary economy. It sounds like most people are saying that job stability would suffer and that shouldn't matter. Or that people would get use to it job instability or live with pay decreases.

And what you do with the psychological effect?

I mean, someone people will look back and say:

"Oh the good times, back in 2010, when I got 10.000 BTC for selling Pizza. Now I am getting this crap paltry 0,000001 BTC"

Even if 10.000 BTC was valued 15 USD and now 0,000001 is 30 USD

And what you do with the psychological effect?

I mean, someone people will look back and say:

"Oh the good times, back in 2010, when I got 10.000 BTC for selling Pizza. Now I am getting this crap paltry 0,000001 BTC"

Even if 10.000 BTC was valued 15 USD and now 0,000001 is 30 USD

I would love to post this in the economic section, but... I am a newbie.

The Austrian school of economics says that deflation seems to have a positive effect on everyone and I would tend to agree. Inflationary economics seems to really be bad all around except for the government and central banks. In a In Keynesian/inflationary economics Goods and services tend to go up in price while the wages employees are earning go down in value every year, thus the need for employers to give out standard for living increases. In a Austrian/deflationary economy there would be no need for a standard of living increase as the amount of money they were making on a yearly or hourly basis would increase in its purchasing power each year.

Which brings me to my question:

Would there be job stability in a Austrian/deflationary economy?

I know there would be more jobs available, but It seems there would be no reason for a company to want to keep older employees as they are paying them much more in purchasing power than new employees.

For example: Lets say I, the employer, hired you, the employee, on at 10$ an hour. And for easy math sake lets say there is deflation at 10% a year. So the following year I hire employee number 2, who does the exact same job you do, at 9 dollars an hour. I pay him 9$ because I have adjusted his rate for his 10% deflation. Now lets say this continues for 10 years. As an employer, why would I want to keep you on at 10 dollars an hour when I could fire you, and use your 10 dollars an hour to hire 10 people to replace you at 1 dollar an hour. It seems like deflation would make a standard of living decrease common amongst business.

This is the only problem that I can see in the Austrian way of thinking. And in fairness it seems like a much better problem then having your wage purchasing power stripped away from you every year through inflation. It just doesn't seem to promote longevity in the career of an employee.  




Maybe a nice moderator can place this in the economics section for me

I'm not arguing that it would be a tough sell, though I do think that's a PR problem when trying to sell this idea. I am asking if job stability would suffer in a deflationary economy. It sounds like most people are saying that job stability would suffer and that shouldn't matter. Or that people would get use to it job instability or live with pay decreases.  

The Austrian school of economics says that deflation seems to have a positive effect on everyone and I would tend to agree. Inflationary economics seems to really be bad all around except for the government and central banks. In a In Keynesian/inflationary economics Goods and services tend to go up in price while the wages employees are earning go down in value every year, thus the need for employers to give out standard for living increases. In a Austrian/deflationary economy there would be no need for a standard of living increase as the amount of money they were making on a yearly or hourly basis would increase in its purchasing power each year.

It's not a problem though.  I don't know why you think employees deserve to be paid more than what their labor is worth.  They don't.

An adjustment of wages towards cost of living is meant to give the employee the exact value of their labor.  If the cost of living goes down, the employee's wages should go down according to a cost of living adjustment.

You can argue about it being a tough sell to employees all you want, but the reality is, if the employer had to reduce their wage due to a cost of living decrease, then other companies likely did the same, and jobs listed in the area for the same type of work would likely pay the same as the new wage rate.  Even if the employee didn't like it, there wouldn't be anyone else willing to pay them more.

So then would it be necessary for there to be a standard of living decrease? Or would jobs just hire you way under what your currently worth to try and get you to stay around? Either way it still seems like a problem similar to inflationary economies, just in reverse.

Since the deflation in bitcoins is predictable, a bitcoin's value today already includes the present value of holding the bitcoin as it deflates. There can't be a significant actual increase in value just from predictable factors.

To give an analogy, suppose everyone knew for a fact that gold would hit $2,500/oz in two years. What would happen to the price of gold today? The assumption that something will go way up in value in the future will cause it to go way up in value today, preventing the future rise because it will have already happened.

The deflation did not lower their wage. The deflation artificially gave them the more cost for less production value. If deflation was accelerated to 90%, then a person working at the original 10$ would be producing goods worth 2$.

If they understand market pressure then they would also understand that their 1$ paycheck buys as much as 10$ used to before the deflation. They would also understand that if you are selling their retail production at 10% of cost they will very quickly be without work as you will be out of business. It is nice to keep employees, but if they fail to see value in making economically sound decisions, then they will find that I wouldn't see value in continuing to fund their dream world.

The biggest problem with deflation is debt accumulation. With deflation any debt is more expensive to pay off than the value of the goods originally obtained with said debt.