Another factor supporting spiraling inflation increases was the wage-price feedback loop. As prices rose, labour organisations demanded ever high wage increases, which fed back to consumer prices, which spurred additional wage increases. This was a key factor contributing to broader consumer price inflation in America in the 1970s. But would this loop have been sustained, in the absence of recession?
Perhaps not. The share of union members in the American workforce had been in slow decline from the immediate postwar period through the early 1970s, but during the 1970s the erosion of labour power picked up speed. Between the early 1970s and the early 1980s, the share of the workforce in unions fell from around 30% to 20%. In the private sector, unionised industries were subject to increasing competition from rapidly developing, export-oriented Asian economies, notably Japan. It seems likely that eroding worker bargaining power would have made it ever more difficult for labour to demand significant wage increases on a regular basis. Declining unions would have helped to stop inflation.
