Does Inflation Grease the Wheels of the Labor Market?
AbstractInflation can “grease” the wheels of the labor market by relaxing downward wage rigidity but it can also increase uncertainty and have a negative “sand” effect. This paper studies the grease effect of inflation by looking at whether the interaction between inflation and labor market regulations affects how employment responds to changes in output. The results show that in industrial countries with highly regulated labor markets, the grease effect of inflation dominates the sand effect. In the case of developing countries, we rarely find a significant effect of inflation or labor market regulations and provide evidence indicating that this could be due to the presence of a large informal sector and limited enforcement of de jure labor market regulations.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.
Volume (Year): 6 (2006)
Issue (Month): 1 (October)
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Web page: http://www.degruyter.com
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- Pierpaolo Benigno & Luca Antonio Ricci, 2010.
"The Inflation-Output Trade-off with Downward Wage Rigidities,"
NBER Working Papers
15762, National Bureau of Economic Research, Inc.
- Pierpaolo Benigno & Luca Antonio Ricci, 2011. "The Inflation-Output Trade-Off with Downward Wage Rigidities," American Economic Review, American Economic Association, vol. 101(4), pages 1436-66, June.
- Pierpaolo Benigno & Luca Antonio Ricci, 2010. "The Inflation-Output Trade-off with Downward Wage Rigidities," EIEF Working Papers Series 1020, Einaudi Institute for Economics and Finance (EIEF), revised Apr 2010.
- Luca Antonio Ricci & Pierpaolo Benigno, 2009.
"The Inflation-Unemployment Trade-off at Low Inflation,"
IMF Working Papers
09/34, International Monetary Fund.
- Pierpaolo Benigno & Luca Antonio Ricci, 2008. "The Inflation-Unemployment Trade-Off at Low Inflation," NBER Working Papers 13986, National Bureau of Economic Research, Inc.
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