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The Changing Responsiveness of Wages to Price-Level Shocks: Explicit and Implicit Indexation

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  • Holland, A Steven
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    Abstract

    This article provides evidence for the U.S. over the period 1961-84 that the respons iveness of nonunion wages to price-level shocks changes through time much as the degree of indexation in union contracts does, suggesting that there exists implicit as well as explicit indexation. When coupl ed with the result from previous research that indexation responds po sitively to inflation uncertainty, the findings indicate that greater inflation uncertainty may lead to reduced overall wage rigidity. In the context of a rational expectations model with long-term wage cont racts, a decline in the effectiveness of an activist monetary policy could result. Copyright 1988 by Oxford University Press.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 26 (1988)
    Issue (Month): 2 (April)
    Pages: 265-79

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    Handle: RePEc:oup:ecinqu:v:26:y:1988:i:2:p:265-79

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    Cited by:
    1. Julio A. Carrillo & Gert Peersman & Joris Wauters, 2014. "Endogenous Wage Indexation and Aggregate Shocks," CESifo Working Paper Series 4816, CESifo Group Munich.
    2. Jovanovic, Boyan & Ueda, Masako, 1998. "Stock-Returns and Inflation in a Principal-Agent Economy," Journal of Economic Theory, Elsevier, vol. 82(1), pages 223-247, September.
    3. B. Hofmann & G. Peersman & R. Straub, 2010. "Time Variation in U.S. Wage Dynamics," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/691, Ghent University, Faculty of Economics and Business Administration.
    4. Steven Holland, 1994. "Inflation and Wage Indexation in the Postwar U.S," Macroeconomics 9402001, EconWPA.

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