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Does inflation lower productivity? Time series evidence on the impact of inflation on labor productivity in 12 OECD nations

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  • Donald Freeman
  • David Yerger

Abstract

According to proponents of zero-inflation policies, even low rates of inflation create distortions in capital allocation and in price signals, which result in lower rates of productivity growth. This paper tests the hypothesis that inflation has a causal impact (in the Granger sense) on labor productivity growth in manufacturing for 12 countries of the Organization for Economic Cooperation and Development (OECD). In bivariate tests of inflation and productivity and in multivariate tests using controls for cyclical effects, there is no evidence of a consistent relationship between inflation and productivity growth with regard to either sign or magnitude. Therefore, the present analysis does not support the view that further reductions in inflation from already low single-digit levels would have a positive impact on labor productivity growth for major industrial countries. Copyright International Atlantic Economic Society 2000

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  • Donald Freeman & David Yerger, 2000. "Does inflation lower productivity? Time series evidence on the impact of inflation on labor productivity in 12 OECD nations," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(3), pages 315-332, September.
    • Handle: RePEc:kap:atlecj:v:28:y:2000:i:3:p:315-332
    DOI: 10.1007/BF02298324
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    References listed on IDEAS

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    Cited by:

    1. Saten Kumar & Don J. Webber & Geoff Perry, 2012. "Real wages, inflation and labour productivity in Australia," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 2945-2954, August.
    2. Chor Foon Tang, 2014. "The effect of real wages and inflation on labour productivity in Malaysia," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(3), pages 311-322, May.
    3. Sanjoy Kumar Saha, 2022. "How Does the Impact of Foreign Direct Investment on Labor Productivity Affects Productive Capacity?," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 12(4), pages 101-135.
    4. Musa Oduola & Mustapha O. Bello & Rahmon Popoola, 2022. "Foreign Direct Investment, Institution and Industrialisation in Sub-Saharan Africa," Economic Change and Restructuring, Springer, vol. 55(2), pages 577-606, May.
    5. Mahadevan, Renuka & Asafu-Adjaye, John, 2005. "The productivity-inflation nexus: the case of the Australian mining sector," Energy Economics, Elsevier, vol. 27(1), pages 209-224, January.
    6. Tim Bulman & John Simon, 2003. "Productivity and Inflation," RBA Research Discussion Papers rdp2003-10, Reserve Bank of Australia.
    7. Javier Pérez & A. Sánchez, 2011. "Is there a signalling role for public wages? Evidence for the euro area based on macro data," Empirical Economics, Springer, vol. 41(2), pages 421-445, October.
    8. Chaido Dritsaki, 2016. "Real wages, inflation, and labor productivity: Evidences from Bulgaria and Romania," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(5), pages 24-36, October.
    9. Phillip Akanni Olomola & Tolulope Temilola Osinubi, 2018. "Determinants of Total Factor Productivity in Mexico, Indonesia, Nigeria, and Turkey (1980–2014)," Emerging Economy Studies, International Management Institute, vol. 4(2), pages 192-217, November.

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