Thursday 4 December 2008
The Enterprise Of The World
Something for you to remember during the negotiations for your next enterprise agreement.
When your employer says that if they are paying more money out in wages they expect increased productivity just remember this is businesses way to get more productivity for what is essentially the same amount of money.
What is involved in the equation is the actual face value of the money used, the spending power or overall value of money and inflation.
The overall value of money is related to the spending power of the money and what inflation does is makes that value less than what it previously was so if increases in wages are tied to increased productivity then the organisation gets more out of the money that they are spending even though they are essentially paying essentially the same price in real terms. While the face value of the whole sum of money they give out is higher than previously the actual spending power of the individual units of money is worth less due to inflation so the extra money in the wage increase just brings the spending power of the whole sum of money to what it was before inflation.
Because prices are going up the businesses are essentially taking in the same monetary value that they were previously taking in before inflation. Overall value wise it's the same even though the face value is more. Since monetary value and face value of money are different things business use both value outlooks interchangeably to suit their own argument. The previously mentioned business argument that if they have to spend more money they should get more for it refers to face value of money, not the actual overall value of the money.
And on the other side of the coin if wages are not increased to match inflation then business gets the same productivity for less money in real terms. The actual face value of the money is the same but the spending power of that money is less and because of inflation the business is taking in more money.
Remember that next time you vote for your next enterprise agreement.
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4 comments:
On the flip side of the coin business doesn't offer you more of their product or of their service when they increase their prices to beat inflation, it stays the same and sometimes they give less
Another way to look at value for money is the Big Mac index.
If you're unable to buy as many Big Macs as you used to then your money isn't worth as much so if you should be able to by x amount and you can't get that many then you are being paid less regardless of the face value of the money they use to pay you.
If you believe that the value of money lies solely in the numbers on the coins and notes and not in its purchasing power with inflation robbing the individual units of money of their value or purchasing power over time is wrong then please note that when historical prices are mentioned in dollars (or whichever unit is used) relevant to the year in question it is always translated into ‘today’s dollar value’ as in if an item cost $100 in 1969 the price in 2010 is around $3700.
If you were being paid $100 in 1969 and 41 years later you are still being paid $100 you are being paid the same actual amount of dollars but the 2010 $100 will buy you nowhere near as much as your 1969 $100. Meanwhile the business you work for will have raised its prices to match inflation will be getting an absolute bargain price for your labour. If the purchasing power of the money is not the issue then no historical monetary figure would be translated into ‘today’s dollars’ and no one would be concerned with their wages keeping up with inflation.
So to make sure I am getting paid properly I have to make sure my pay is relevant to the economy at the time? So to be paid fairly in 2010 I need to be paid in 2010 dollars, not 2007 dollars, 2005 dollars, 1980 dollars or 1969 dollars, especially since $100 doesn’t buy as much now as it did in 1969 or even 2005!
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