High and variable inflation also triggered large wage settlements. This fuelled inflation expectations and contributed to both a wage-price spiral and a wage-wage spiral.3 In the economics literature of the day, there was a lot of confusion over the role that inflation expectations play in the wage-formation process.
The literature stressed that workers and unions sought to catch up with inflation that had already occurred. But against this background, Milton Friedman argued that forward-looking expectations were more important in wage bargaining than catching up with past inflation. In particular, he stressed that workers bargain over real, and not nominal, wages.