Question

Meaning of wages indexation with diagram?

Answer 1

Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation.

When a government decides to index wages of government employees to inflation it is to transfer the risk of inflation away from government workers onto the government. Such a policy is to attempt to reduce inflationary expectation and in turn inflation when it is rising rapidly. 

Source:

https://en.m.wikipedia.org/wiki/Indexation