Compare the role of inflation with money and the real earning of the Industrial workers.Use appropriate data to justify your answer?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The role of money in the earnings of any workers is to give them their nominal income.  In other words, workers are paid in money and the amount of money they get determines their nominal income.

When inflation enters the picture, however, you move towards the concept of real income.  Inflation (rise in general price level in an economy) will reduce the amount that workers can buy with their nominal income.  For example, if your nominal income stays level while inflation doubles the price level, you only have half the buying power that you previously did.  In this case, your real income has gone down because your income is worth less.

So money determines the nominal income of workers but inflation impacts that and determines the workers' real income.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

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In economics inflation means general rise in prices of goods and services in an economy over a period. The rise in prices may be different for different items of goods and services. Therefore to assess the overall extent of inflation the average price increase in the prices is calculated. This average rate of inflation is usually expressed as percentage increase in prices per year. Thus average price increase of 2 percent for a quarter will be expressed as 8 percent rate of inflation for the quarter.

The effect of inflation can also be seen as a reduction in value or purchasing power of money. Thus for a given amount of disposable income the inflation reduces the amount of goods and services that the person can purchase with the given income. In other words, inflation reduces the real income of people in the economy.

This reduction in purchasing power of money or of real earning of people, for a given level of inflation is same for all classes of people including industrial workers. However, since people from different classes may buy different baskets of goods and services, it is possible for the applicable rate of inflation for a given period may be  different for different class of people in the economy.

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