Question

How does indexing wage contracts to inflation help workers?

Short answer

Your standard of living declines when wages are not indexed or rise in lockstep with inflation.

Step-by-step solution

Step 1. Define inflation.

Inflation is defined as a rise in the price of goods and services over time in a given economy.

Step 2. Rate of unemployment is higher in low-income countries. 

When wage contracts are indexed, earnings rise in lockstep with inflation. This implies what you can buy with your salary, your level of living, remains the same. Your standard of living declines when wages are not indexed or rise in lockstep with inflation.