Why is it that when there is low inflation workers will accept a low wage increase?

Answer 1

From the worker's perspective, raises are judged good or bad in reference to inflation. Its really a question of buying power more than the actual amount of money. Think of this example... If inflation is running 2% per year and you get a 2% raise, you break even. Your salary buys the same stuff at the start the year and the end of the year. If inflation is 2% and you got a 4% raise, you're now making more money than before. You have more buying power relative to the economy as a whole. So as a worker, your goal is to be able to buy more each time you get a raise. So if inflation is low, you can accept a lower raise and still increase buying power as long as the raise is higher than inflation. So when infaltion is low, a low raise (that's still bigger than the rate of inflation) just as effective as a large raise when inflation is high.