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Identifying inflations grease and sand effects in the labor market

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  • Erica L. Groshen
  • Mark E. Schweitzer

Abstract

An effort to distinguish inflations distortionary effects from its facilitation of adjustments to shocks when wages are rigid downward. It uses the following identification strategy: inflation-induced deviations among employers mean wage changes represent unintended intramarket distortions (sand), while inflation-induced, interoccupational wage changes reflect adjustments that might have been prevented by nominal wage rigidity (grease).

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File URL: http://www.clevelandfed.org/research/workpaper/1997/wp9705.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9705.

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Date of creation: 1997
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Handle: RePEc:fip:fedcwp:9705

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Keywords: Inflation (Finance) ; Wages;

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References

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  1. David Card & Dean Hyslop, 1995. "Does Inflation 'Grease the Wheels of the Labor Market'?," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 735, Princeton University, Department of Economics, Industrial Relations Section..
  2. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  3. 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, University of Chicago Press, vol. 100(2), pages 349-89, April.
  4. 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(1), pages 1-76.
  5. Erica L. Groshen & Mark E. Schweitzer, 1994. "The effects of inflation on wage adjustments in firm-level data: grease or sand?," Working Paper 9418, Federal Reserve Bank of Cleveland.
  6. Javier Andres & Ignacio Hernando, 1997. "Does Inflation Harm Economic Growth? Evidence for the OECD," NBER Working Papers 6062, National Bureau of Economic Research, Inc.
  7. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(3), pages 383-414, December.
  8. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 451-72, June.
  9. Bryan, Michael F & Gavin, William T, 1986. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 18(4), pages 539-44, November.
  10. Levine, David I, 1993. "Fairness, Markets, and Ability to Pay: Evidence from Compensation Executives," American Economic Review, American Economic Association, American Economic Association, vol. 83(5), pages 1241-59, December.
  11. Haley, James, 1990. " Theoretical Foundations for Sticky Wages," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 4(2), pages 115-55.
  12. Vining, Daniel R, Jr & Elwertowski, Thomas C, 1976. "The Relationship between Relative Prices and the General Price Level," American Economic Review, American Economic Association, American Economic Association, vol. 66(4), pages 699-708, September.
  13. Laurence Ball & Stephen G. Cecchetti, 1990. "Inflation and Uncertainty at Long and Short Horizons," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 215-254.
  14. Blinder, Alan S & Choi, Don H, 1990. "A Shred of Evidence on Theories of Wage Stickiness," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(4), pages 1003-15, November.
  15. David E. Lebow & David J. Stockton & William L. Wascher, 1995. "Inflation, nominal wage rigidity, and the efficiency of labor markets," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-45, Board of Governors of the Federal Reserve System (U.S.).
  16. Erica Groshen, 1996. "American employer salary surveys and labor economics research: issues and contributions," Research Paper, Federal Reserve Bank of New York 9604, Federal Reserve Bank of New York.
  17. 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.
  18. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
  19. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, American Economic Association, vol. 87(5), pages 993-1008, December.
  20. Erica Groshen & David Levine, 1998. "The rise and decline(?) of U.S. internal labor markets," Research Paper, Federal Reserve Bank of New York 9819, Federal Reserve Bank of New York.
  21. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, American Economic Association, vol. 62(1), pages 1-18, March.
  22. Allan Drazen & Daniel S. Hamermesh, 1986. "Inflation and Wage Dispersion," NBER Working Papers 1811, National Bureau of Economic Research, Inc.
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