One way to contain compensation is for the central bank to raise interest rates when inflation starts to build. The logic is that increasing unemployment will moderate pay pressures and also discourage business from giving employers pay increases in excess of productivity gains. Ironically, quite a few “free markets” supporters endorse this type of intervention to correct a perceived marker failure (labor having undue bargaining power) but reject a raft of others.
One of the hard things about free markets is that everybody seems to want to meddle with at least one small portion that they see as problematic. However, if you are not careful you can end up with unexpected consequences as markets respond to incentives in unexpected ways. This is not to say that inflation is a good thing (it isn’t) but rather to recognize that real markets have limitations and failures.
This example is particularly interesting as one of the great issues of the moment is how powerless workers have become in the face of tight credit markets.