How is it that the cost of living continuously increases....but income doesn't?

Question

Yeah, um...i said 'continuous'. Wages do not follow a 'continuous' increase at the same rate as the cost of living.

Answer 1

Cost of living increase is a reflection of the fact there is a certain amount of inflation. Recall that inflation is a general increase in the overall level of prices in the economy. This happens continuously....as the saying goes a little inflation (2%) allows the economy to function smoothly. This is because inflation is calculated using the prices of goods produced.

Wages however are factor prices...these prices are often set in contracts and do not change continuously. Hence the difference. The difference is small and since we can borrow from the future using credit cards and loans, this is not a terrible thing. We can keep our consumption of goods as "smooth" as we would like to.

Answer 2

Wages don't go down easily... it's hard to pay someone less for the same work. So employers are REALLY cautious about wage increases, because they have a hard time taking it back. Cost of living is not exactly continuous either; prices go up at particular times, and price changes really only matter when you decide to buy that item again. They don't match up with each other exactly, but then, what does in economics?

Answer 3

In 1914 Henry Ford set wages at the Ford Motor Comapany at 5.00 a DAY. Of course the cost of living has went up since 1914.
The last time I looked the wages have went up since then too.
Persevere,
J

Answer 4

Of course the cost of living increases when greedy owners up the prices. Executives retire with millions, and greedy corporations monopolise the market. We the crap left over have to live on a pittance to sustain the upper class, who are more than supported by those corporations.

Answer 5

Wages are supposed to keep up with inflation (increasing costs). In reality, wages are always lagging behind price increases because what employer pays their employees more than they are forced to?

Answer 6

Most of it is to be blamed on
1. scarcity eg;Flunctuating oil prices
2.The war in Iraq, causing continuous political unrests
3..Higher occurence of natural disasters eg Hurricane Katrina

As we say, when U.S sneezes, the rest of the world catches a cold, or worse yet pneumonia !
I would argue that most of the blame lies heavily on 2 and 3.
Bush administration is partly financing the war through your taxes, with the rest coming from external debts.

With the political turmoil in Iraq, there is investment slowdown into upgrading the Iraqui oil infrastructure, and potential oil reserves remain unexploited.
Most firms and producers rely on fossil fuel energy to power their industries at rising costs. This is a plight passed on to consumers base on inflation trends.

I agree with what sparowe05 said, inflation is related to wage.It is not as simple as that to ignore inflation,for the desire of increasing wage to compensate higher living cost!

Answer 7

It's the government way of saying, GOTCHA!!!