The world is constantly struggling with changes in economic trends. Among factors that determine global economic trends include the consumer confidence index, the gross domestic product and the fraction of the labor force that is not working. These can either impact economies negatively or positively. In this article, we will look at the bargaining gap and inflation. 

What is Bargaining Gap?

This refers to the variance between the real wage that firms are looking to offer to give incentives to their employees and the real wage whereby companies can maximize profits in consideration of the rate of competition in the industries. 

The bargaining gap affects the equilibrium in employment rates. 

What is an Inflation?

The decline in consumers’ purchasing power as a result of a decrease in the value of the currency, commonly known as inflation occurs from time globally. Inflations measure the overall impact of price changes for a variety of services and products. This allows for a representation of a single value in the increased prices of services and goods over a given period. 

The causes of inflation can be explained through the mechanisms that drive inflation. These include; 

Demand-Pull inflation- This occurs when there is an increase in the money supply in the economy. As a result, there is an increased demand for services and goods than the economy’s capacity, which leads to increased prices. 

Cost-Push inflation- This occurs as a result of the increase in prices in the inputs of production. The trend results in an increase in the prices of finished services and products. 

Build-In inflation- This is inflation that results from the idea that consumers expect current trends of inflation to continue in the future. 

Inflation is measured using the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). Depending on an individual’s viewpoint, it can be viewed negatively or positively. People with assets such as stocked commodities and property may benefit from inflation as it raises the value of the assets. On the other hand, people holding cash do not benefit from inflation as it only leads to a decline in the value of the money. 

To prevent the effects of inflation in the economy, the government may take the necessary steps to stabilize the economy. 

Differences between Bargaining gap and Inflation

Definition

The bargaining gap refers to the variance between the real wage that firms are looking to offer to give incentives to their employees and the real wage whereby companies can maximize profits in consideration of the rate of competition in the industries. On the other hand, inflation refers to a decline in consumers’ purchasing power as a result of a decrease in the value of the currency.

Bargaining gap vs. Inflation: Comparison Table

Summary of Bargaining Gap vs. Inflation

The bargaining gap refers to the variance between the real wage that firms are looking to offer to give incentives to their employees and the real wage whereby companies can maximize profits in consideration of the rate of competition in the industries. On the other hand, inflation refers to a decline in consumers’ purchasing power as a result of a decrease in the value of the currency.

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