Can Pay Hikes Be Really Linked With Inflation?

Apparently it is already a reality. Bombay High court has suggested that wage hike has to take into consideration the price rises in basic commodities.

HUL workers union was the first beneficiary where Bombay High Court directed the company to increase the wages of its workers factoring in the increase in prices of essential commodities.

It is another matter that HUL is going to challenge the court order but lets not get into that and ponder over if the idea of pay hike and inflation is a feasible approach.

To start with, I am not against the model and will rather love the pay hikes to increase with rising prices. The idea in itself is rather simple- If prices increase, your purchasing power decreases and thereby the wage is reduced. Where the middle and upper classes may feel a pinch, the people at the bottom of the value chain are hurt the most. It can become a matter of sustainability for them if the prices of essential commodities skyrockets. But to assume that linking pay hikes with rising prices is a practical approach, I have my doubts & reservations.

Companies Will Have To Pass Atleast A Portion Of Additional Cost (Pay Hikes) to Consumers!!

Considering a scenario where the prices always increase (which is probably true) and companies start factoring in the wage hikes to price rise, there is going to be an added cost for the company.

Now unless all the companies plan to account for that cost from their margins seems unlikely. Even if the judiciary bodies warrant them to do so, a portion of that cost is going to be passed on to the consumer- including the very consumer who is receiving the wage hike in the first place. The marginal increase in the wage then is negated by the incremental increase in the price of commodity. This then becomes an endless spiral and no one wins. Am I missing something here?

I tend to agree that the wage hike models used in majority of companies are old and I wouldn’t be surprised if they don’t factor in the economic shift and the current market dynamics.

So there is every possibility that the wages and the models determining the revisions are far from the ground reality. So, the idea of factoring in the current market conditions with respect to increase in prices seems like a good idea on paper but I am skeptical of the implementation. Then again, I am no economist and my skepticism be completely unwarranted here.

What are your thoughts on linking pay hikes with inflation? Does the idea have merit to be successful and helping bring some parity to the purchasing power of the consumer?