There’s some debate in the economics world about whether a “wage price spiral” exists in reality, and how much of a danger it poses. And yet the Bank of Korea is so alarmed by the massive bonuses being paid to workers building semiconductors that it has flagged this as an inflationary concernA wage-price spiral is the concept of higher wages increasing consumer demand and pushing up prices as a result. This, in turn, pushes other employees to ask for higher salaries, and the spiral continues upward.South Korea’s central bank seems worried about a version of this scenario. In a June 17 report, the Bank of Korea noted that inflationary pressures derived largely from energy prices, which have increased as a result of conflict in the Middle East.
However, the bank also noted that upward pressure on wages have prevailed in certain industries because of productivity improvements, labor market conditions, and the expansion of performance-based compensation.
Addressing the semiconductor industry in particular, the bank wrote that “performance-based bonuses have increased significantly in line with improvements in corporate performance. These income increases may expand household consumption capacity.”
