PKE Theory of Wages and Inflation

Inflation has come to occupy centre stage as the most pressing economic problem, at the expense of employment (Arestis and Skuse, 1989). PKE exponents argue that the inflationary process is embedded in the structure of mature capitalist economies and is the consequence of a struggle over shares in national income. This leads to a conflict theory of inflation. The conflict arises between the wage setting process and the price setting process, the former being used by labour, the latter by corporations, to influence the share of wage and profit income respectively. There is thus a mutually reinforcing process of price rises and wage rises in PKE analysis of wage and price formation, which is firmly built into the economic system. It is demonstrated in this way that if workers succeed in pushing up money wages in line with the explanation offered in this chapter, these wage rises will inevitably be passed on in the form of higher prices. Faced with firms operating in an oligopolistic and monopolistic environment, labour will find it difficult to raise its wage share at the expense of profit. The result of the struggle will therefore be an inexorable tendency of the price level to rise.