Chapter 18
The Wage-Price Spiral and Evil Labor
Unions
The wage-price spiral narrative took hold in the United States and many other
countries around the middle of the twentieth century. It described a labor
movement, led by strong labor unions, demanding higher wages for themselves,
which management accommodates without losing profits by pushing up the
prices of final goods sold to consumers. Labor then uses the higher prices to
justify even higher wage demands, and the process repeats itself again and again,
leading to out-of-control inflation. The blame for inflation thus falls on both
labor and management, and some may blame the monetary authority, which
tolerates the inflation. This narrative is associated with the term cost-push
inflation, where cost refers to the cost of labor and inputs to production. It
contrasts with a different popular narrative, demand-pull inflation, a theory that
blames inflation on consumers who demand more goods than can be produced.
As Figure 18.1 shows, the two epidemics, wage-price spiral and cost-push
inflation, are roughly parallel. Both epidemics were especially strong sometime
between 1950 and 1990. These epidemics reflected changes in moral values,
indicating deep concerns about being cheated and a sense of fundamental
corruption in society. According to the narratives, labor unions were deceitfully
claiming to represent labor as a whole, when in fact they were representing only
certain insiders.1 Meanwhile, politicians and central banks were selfishly
perpetuating the upward spiral of inflation, which impoverished real working
people not represented by powerful unions. There has been a long downtrend in
public support in the United States for labor unions, from 72% in 1936 to 48% in
2009, as documented by the Gallup Poll.2

FIGURE 18.1. Frequency of Appearance of Wage-Price Spiral and Cost-Push Inflation in Books, 1900–2008
These two related epidemics helped bring about major changes in labor relations and government regulation
of business. Source: Google Ngrams, no smoothing.
These narratives were enhanced by detailed stories that invited angry
responses. For example, around 1950 an outrageous story went viral about labor
unions’ reframing their wage in terms of miles traveled rather than hours
worked. The New York Times described it thus in 1950:
One of the rule changes asked by these two unions is that the pay base for
trainmen and conductors on passenger trains be lowered to 100 miles or five
hours, from 150 miles or seven and a half hours. The railroads have countered
by asking that the basic day’s work be increased to 200 miles.… Because of
recent technological improvements, including the greater use of diesel
locomotives, the speed of passenger trains has been increased, where many
passenger train service employes now receive a day’s pay for two and a half
to three hours of work. By reducing the number of miles in the basic day to
100, the mileage rate of pay of the passenger train employes would be
increased by 50 per cent.3
So, the story went, the conductors would have the opportunity to sit down as

passengers after working only two and a half hours, long before the trip was
over. Such an outrageous demand made the narrative highly contagious, and it is
memorable enough to be remembered today.
Labor unions became associated in the public eye with organized crime. For
example, Jimmy Hoffa took over the International Brotherhood of Teamsters
union in 1957, despite corruption charges against him then, and led that union as
an absolute dictator. There was for years an ongoing story of his investigation for
gangster-like activities, in a probe led by Robert F. Kennedy. Hoffa was
convicted of bribery and fraud and went to prison from 1967–71. In 1975 he
disappeared after being last seen in the parking lot upon leaving the Red Fox
Restaurant in Bloomfield Township. Rumors were that he was murdered by rival
gangsters. Rumors were that his body “was entombed in concrete at Giants
Stadium in New Jersey, ground up and thrown in a Florida swamp, or perished in
a mob-owned fat-rendering plant.”4 These colorful theories, which suggest vivid
visual mental images of Hoffa’s ignominious end, led to the contagion rate of the
Hoffa epidemic that further discredited labor unions. The search for his body in a
garbage dump, an empty field, and elsewhere created news stories until 2013.
This was a viral story, part of a constellation of narratives that described labor
unions in negative terms, and which impelled many people to see real evil in
them.
The wage-price spiral narrative was reflected in actual inflation rates around
the world, which tended to be unusually high when the narrative was strong. The
World Bank’s Global Inflation Rate peaked in 1980, approximately at the peak
of cost-push inflation in Figure 18.1, and it has been mostly on the decline ever
since. These epidemics also saw high long-term interest rates, reflecting the
inflation expectations engendered by the narrative. Today, inflation is down
across much of the world, and long-term interest rates have fallen since the
epidemic peaked. The dynamics of this worldwide narrative epidemic likely
provide the best explanation for these epochal changes in trend of the two major
economic variables, inflation and interest rates.
The end of the wage-price spiral narrative was marked by changes in
monetary policy and the advent of newly popular ideas: the independent central
bank5 and inflation targeting6 by central banks. The independent central bank
was designed to be free from political pressures, which organized labor tries to
exploit. Inflation targeting was designed to place controlling inflation on a
higher moral ground than appeasing political forces.