Why should firms get a free 2% cut in salaries paid? Generally, firms are in a stronger negotiating position about salary, especially for the lowest skill labor and poorest people.
If there's a downturn, then everyone will have to tighten belts, and firms can make that case to employees.
Making a real 2% salary cut the universal default is cruel, and if your typical hourly wage-earner understood clearly the choice being made on their behalf, they'd be pissed.
Deals shouldn't be altered without agreement, but that's what 2% inflation targets do. If you agree to a salary, then nobody should be specifically putting their thumb on the scale one way or the the other.
Professionals and job-hoppers have less problem negotiating to keep up with inflation. It's the poor people who get screwed.
Also, inflation is less steady the farther away from zero it is, I'd wager. So we have inflation spikes sometimes, like we've seen. There's always a time lag between spikes in price increases on goods, and wage increases (which require negotiation). During that lag period before a compensating wage increase, savings get used and real loss is suffered. I highly doubt that the loss in savings is generally recovered, and the Fed never even aims to recover that loss. The most vulnerable people lose the most, and are impeded from building wealth as a result, and probably come to depend on government more.
It's not a "free 2% cut in salaries", it apply to everything else. If there is 2% inflation the company will have to pay everything more and will have probably have to negotiate to get higher price from its client too or it will not get its 2% more revenue to compensate the increase of everything.
Additionally, usually workers have too take debts too buy their house. If there is a little inflation and the salaries are following inflation the debts becomes comparatively lower every year.
It's not just against workers. There are upsides and downsides for everybody.
You’re imagining every firm gets 2% savings every year. That isn’t how it works.
Most firms have rising real wages: real wages rose during the 2% inflation period.
But sometimes a firm needs to lower costs. Having a small bit of inflation lets a firm do so without either firing people or actually cutting nominal wages.
There is no consistent "2%" inflation period. If a year were to have 6.5% inflation (like with year 2022-2023), most firms will not raise real wages to match it. Over the last decade we've had a 2.82% average inflation rate with 4.41% variance showing how much we overshot both metrics.
If there's a downturn, then everyone will have to tighten belts, and firms can make that case to employees.
Making a real 2% salary cut the universal default is cruel, and if your typical hourly wage-earner understood clearly the choice being made on their behalf, they'd be pissed.
Deals shouldn't be altered without agreement, but that's what 2% inflation targets do. If you agree to a salary, then nobody should be specifically putting their thumb on the scale one way or the the other.
Professionals and job-hoppers have less problem negotiating to keep up with inflation. It's the poor people who get screwed.
Also, inflation is less steady the farther away from zero it is, I'd wager. So we have inflation spikes sometimes, like we've seen. There's always a time lag between spikes in price increases on goods, and wage increases (which require negotiation). During that lag period before a compensating wage increase, savings get used and real loss is suffered. I highly doubt that the loss in savings is generally recovered, and the Fed never even aims to recover that loss. The most vulnerable people lose the most, and are impeded from building wealth as a result, and probably come to depend on government more.