In an economy, an increase in wages leads to an increase in demand for some goods and services as people have more disposable income to spend. Higher wages also increase the production costs for businesses as they have to pay more money to their labourers.
Both these factors increase the prices of goods and services in the economy. These higher prices lead to a rise in the cost of living for workers and an increase in the profits of businesses, causing wages to increase as labourers demand to be paid more. The increase in wages then leads to another increase in prices and the spiral continues.