Higher gas prices may mean higher salaries


Looking for a silver lining to those scary gas prices? Here it is, courtesy of an intriguing post on the New York Times’ Freakonomics blog. The basic argument is that rising gas prices will result in a higher cost of living, and almost always in the past, our salaries have risen when the cost of living goes up.

If that happens, and you spend as much on gas per year as the average Canadian, there’s no net gain. Your salary will go up, and so will your expenses, because of the higher price of gas. But if you don’t have a car, or you have a very efficient one, your salary will go up more than your expenses, and you’ll actually come out ahead. You’ll have more money in your pocket than you do now.

In way, it’s a bit like Dion’s complicated new carbon tax plan. If it’s implemented effectively, it will be revenue-neutral for typical carbon-based fuel users, but higher than average carbon fuel users will pay a heavy price.

But that makes me wonder whether we need Dion’s “Green Shift” plan at all. It looks very much like our open market could take care of providing the all the incentives we need to cut down on fossil fuels –- all by itself.

Filed under:

Higher gas prices may mean higher salaries

  1. I don’t know about pundits and journos but when my salary “goes up” it usually means I’m losing against inflation. I get a 2.5% COLA this year, but utilities, my health benefits plan, and bread and rice have all gone up by much more than that. Public Transit costs have been going up by about 3% per year in Winnipeg, including when the CPI was lower, and even bicylce costs (especially tires) are expected to spike with next year’s models.

  2. Duncan: I’m not sure we can assume, like the Freakonomics blog does, that salaries will generally follow the cost of living upward when inflation is of the cost-push variety. Salaries are more likely to lag, I believe, when the labor market is weak and job losses are climbing as they are during the current stagflation. It’s not an environment that favors unions and individuals bargaining for higher wages.

  3. I agree with Larry MacDonald, which just goes to show that quoting an economist no longer carries the weight it once did. Most people have had to gain an understanding of market forces in order to make sense of politics, and it does not ring true to imagine salaries rising against the flagging U.S. economy and sagging manufacturing.

Sign in to comment.