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The effects of inflation on wage adjustments in firm-level data: grease or sand?

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Author Info
Erica L. Groshen
Mark E. Schweitzer

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Abstract

An analysis of whether inflation facilitates adjustments to shocks or distorts relative prices, examining the wage-setting process across a panel of occupations and employers and finding that the costs of inflation may rise more rapidly than its benefits beyond quite modest rates of increase in the price level.

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File URL: http://www.clevelandfed.org/Research/Workpaper/1994/wp9418.pdf
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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9418.

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Date of creation: 1994
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Handle: RePEc:fip:fedcwp:9418

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Keywords: Inflation (Finance) Wages

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Harry J. Holzer & Edward B. Montgomery, 1990. "Asymmetries and Rigidities in Wage Adjustments by Firms," NBER Working Papers 3274, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Allan Drazen & Daniel S. Hamermesh, 1986. "Inflation and Wage Dispersion," NBER Working Papers 1811, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Hartman, Richard, 1991. "Relative Price Variability and Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 185-205, May. [Downloadable!] (restricted)
  4. David Card & Dean Hyslop, 1996. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Working Papers 5538, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Stanley Fischer, 1981. "Relative Shocks, Relative Price Variability, and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1981-2), pages 381-442. [Downloadable!]
  6. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-1), pages 1-76. [Downloadable!]
  7. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June. [Downloadable!] (restricted)
  8. Hamermesh, Daniel S, 1986. "Inflation and Labour Market Adjustment," Economica, London School of Economics and Political Science, vol. 53(29), pages 63-73, February. [Downloadable!] (restricted)
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  9. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April. [Downloadable!] (restricted)
  10. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  11. Groshen, Erica L, 1991. "Sources of Intra-industry Wage Dispersion: How Much Do Employers Matter?," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 869-84, August. [Downloadable!] (restricted)
  12. Blinder, Alan S & Choi, Don H, 1990. "A Shred of Evidence on Theories of Wage Stickiness," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1003-15, November. [Downloadable!] (restricted)
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  13. Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41, pages 127-151, December. [Downloadable!] (restricted)
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  14. Reinsdorf, Marshall, 1994. "New Evidence on the Relation between Inflation and Price Dispersion," American Economic Review, American Economic Association, vol. 84(3), pages 720-31, June. [Downloadable!] (restricted)
  15. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Blackwell Publishing, vol. 44(2), pages 287-303, June. [Downloadable!] (restricted)
  16. Cukierman, Alex, 1983. "Relative price variability and inflation: A survey and further results," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 19, pages 103-157. [Downloadable!] (restricted)
  17. Levine, David I, 1993. "Fairness, Markets, and Ability to Pay: Evidence from Compensation Executives," American Economic Review, American Economic Association, vol. 83(5), pages 1241-59, December. [Downloadable!] (restricted)
  18. Vining, Daniel R, Jr & Elwertowski, Thomas C, 1976. "The Relationship between Relative Prices and the General Price Level," American Economic Review, American Economic Association, vol. 66(4), pages 699-708, September. [Downloadable!] (restricted)
  19. Card, David, 1990. "Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts," American Economic Review, American Economic Association, vol. 80(4), pages 669-88, September. [Downloadable!] (restricted)
    Other versions:
  20. Haley, James, 1990. " Theoretical Foundations for Sticky Wages," Journal of Economic Surveys, Blackwell Publishing, vol. 4(2), pages 115-55.
  21. Julie L. Hotchkiss, 1990. "Compensation policy and firm performance: An annotated bibliography of machine-readable data files," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 274-289, February.
  22. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Loboguerrero, Ana Maria & Panizza, Ugo, 2006. "Inflation and labor market flexibility: The squeaky wheel gets the grease," P.O.L.I.S. department's Working Papers 63, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
    Other versions:
  2. Hamid Mehran & Joseph Tracy, 2001. "The effect of employee stock options on the evolution of compensation in the 1990s," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 17-34. [Downloadable!]
  3. Beth Anne Wilson, 1999. "Wage rigidity: a look inside the firm," Finance and Economics Discussion Series 1999-22, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  4. Takatoshi Ito, 2004. "Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?," NBER Working Papers 10818, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Erica L. Groshen & Mark E. Schweitzer, 1997. "Identifying inflations grease and sand effects in the labor market," Working Paper 9705, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  6. Vittorio Corbo, 2000. "Monetary Policy in Latin America in the 90s," Working Papers Central Bank of Chile 78, Central Bank of Chile. [Downloadable!]
  7. Frederic S. Mishkin, 1998. "Strategies for Controlling Inflation," NBER Working Papers 6122, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Erica Groshen & David Levine, 1998. "The rise and decline(?) of U.S. internal labor markets," Research Paper 9819, Federal Reserve Bank of New York. [Downloadable!]
  9. Frederic S. Mishkin, 2000. "International Experiences with Different Monetary Policy Regimes," NBER Working Papers 7044, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. William Poole, 1999. "Is inflation too low?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 3-10. [Downloadable!]
    Other versions:
  11. Hamid Mehran & Joseph Tracy, 2001. "The Impact of Employee Stock Options on the Evolution of Compensation in the 1990s," NBER Working Papers 8353, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Pierre Fortin & George A. Akerlof & William T. Dickens & George L. Perry, 2002. "Inflation and Unemployment in the U.S. and Canada: A Common Framework," Cahiers de recherche du Département des sciences économiques, UQAM 20-16, Université du Québec à Montréal, Département des sciences économiques. [Downloadable!]
  13. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One decade of inflation targeting in the world : What do we know and what do we need to know?," Working Papers Central Bank of Chile 101, Central Bank of Chile. [Downloadable!]
    Other versions:
  14. Erik Walch, 2001. "An Assessment Of The National Labour Market," BCL working papers cahier_etude_1, Central Bank of Luxembourg. [Downloadable!]
  15. Bernanke, Ben S & Mishkin, Frederic S, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 97-116, Spring. [Downloadable!] (restricted)
    Other versions:
  16. David E. Lebow & Raven E. Saks & Beth Anne Wilson, 1999. "Downward nominal wage rigidity: evidence from the employment cost index," Finance and Economics Discussion Series 1999-31, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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