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The Effects of Inflation and Real Wages on Employment

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  • Wadhwani, Sushil B

Abstract

This paper considers the effects of inflation on employment. The absence of index-linked loans and the possibility that errors are committed in times of inflation, lead to a higher probability of bankruptcy during inflation. If firms care about bankruptcy, this implies a lower level of employment. Empirical results confirming this are presented, and suggest that higher inflation has substantially contributed to the fall in employment in the United Kingdom. The authors also demonstrate that a negative real-wage elasticity is not robust to changes in specification. Copyright 1987 by The Review of Economic Studies Limited.

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  • Wadhwani, Sushil B, 1987. "The Effects of Inflation and Real Wages on Employment," Economica, London School of Economics and Political Science, vol. 54(213), pages 21-40, February.
  • Handle: RePEc:bla:econom:v:54:y:1987:i:213:p:21-40
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    Cited by:

    1. Jennifer Hunt, 1998. "Hours Reductions as Work-Sharing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 339-381.
    2. Mei-Hui Wang & Tai-Hsin Huang, 2009. "Threshold effects of financial status on the cost frontiers of financial institutions in nondynamic panels," Applied Economics, Taylor & Francis Journals, vol. 41(26), pages 3389-3401.
    3. Nickell, Stephen & Nicolitsas, Daphne, 1999. "How does financial pressure affect firms?," European Economic Review, Elsevier, vol. 43(8), pages 1435-1456, August.
    4. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2015. "The own-wage elasticity of labor demand: A meta-regression analysis," European Economic Review, Elsevier, vol. 80(C), pages 94-119.
    5. Jennifer Hunt, 1999. "Has Work-Sharing Worked in Germany?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 117-148.
    6. Broersma, L., 1992. "A bankruptcy constraint and asymmetric influence of the real interest rate on unemployment," Serie Research Memoranda 0038, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    7. Sena, Vania, 2006. "The determinants of firms' performance: Can finance constraints improve technical efficiency?," European Journal of Operational Research, Elsevier, vol. 172(1), pages 311-325, July.
    8. Marimon, Ramon & Zilibotti, Fabrizio, 2000. "Employment and distributional effects of restricting working time," European Economic Review, Elsevier, vol. 44(7), pages 1291-1326, June.
    9. Sandeep Bhargava & Tim Jenkinson, 1996. "Partage explicite ou implicite du profit dans la détermination des salaires," Économie et Prévision, Programme National Persée, vol. 126(5), pages 19-29.
    10. Jennifer Hunt, 1996. "The Response of Wages and Actual Hours Worked to the Reductions of Standard Hours," NBER Working Papers 5716, National Bureau of Economic Research, Inc.
    11. Friesen, Jane, 2001. "Overtime pay regulation and weekly hours of work in Canada," Labour Economics, Elsevier, vol. 8(6), pages 691-720, December.

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