Difference between Bargaining Gap and Inflation

Constant turmoil in the global economy is a result of changing economic trends. Several factors determine the path of economies throughout the world, including the consumer confidence index, GDP, and the unemployment rate. The economic impact of these might be positive or negative. Inflation, the negotiating gap, and related themes will be covered in this article.

What is Bargaining Gap?

This term refers to the disparity between the real salary businesses would want to give to incentivize their employees and the actual wage that businesses need to pay to maximize their profits while considering the amount of competition within their sectors.

Inequitable bargaining positions upset the balance of wage distributions in the labor market.

What is Inflation?

Inflation, the decline in the value of a currency relative to another, causes a decline in the purchasing power of consumers and occurs on a global scale from time to time. Changes in pricing across several different categories can have a significant overall effect, and this is measured as inflation. For a given time period, this allows us to express a single value in terms of the aggregate increase in the costs of a wide range of goods and services.

The factors that generate inflation can be used to explain the reasons why inflation occurs. These are the following −

• Demand−Pull inflation − When there is an increase in the overall quantity of money in the economy, this happens. Due to this, there is a higher need for goods and services than can be met by the economy, leading to price inflation.

• Cost−Push inflation − Input costs increasing has led to this result. The cost of final goods and services has increased due to this pattern.

• Build−In Inflation − As a direct result of consumers' beliefs that current inflation trends would continue for the foreseeable future, this form of inflation has emerged.

Inflation is measured using two different price indices− the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). You can get positive and negative interpretations depending on who you ask. Individuals who already possess assets like stockpiled commodities and real estate may benefit from inflation because of the potential increase in the value of those items. However, those who choose to keep a significant amount of cash on hand lose ground to inflation since their savings lose purchasing power.

To avoid inflation's negative effects on the economy, the government may need to adopt corrective measures.

Differences: Bargaining gap and Inflation

The following table highlights the major difference between Bargaining Gap and Inflation −

Conclusion

The "bargaining gap" is the gap between the actual salary that companies want to pay to attract and retain workers and the real wage that allows them to maximize profits while still being competitive. When the value of a currency declines, consumers' purchasing power decreases; this phenomenon is known as inflation. The currency's value falls, and this happens.