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Inflation Adjustment and Labour Market Structures: Evidence from a Multi‐country Study

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  • Christopher Bowdler
  • Luca Nunziata

Abstract

The impact of labour market structures on the response of inflation to macroeconomic shocks is analysed empirically. Results based on a 20‐country panel show that if labour market coordination is high, the effect on inflation of movements in unemployment, import prices, tax rates and productivity is dampened, both on impact and dynamically. In contrast, monopoly power in labour supply, measured by the percentage unionisation of the workforce, appears to amplify the response of inflation to its reduced‐form determinants. These findings are attributed to the behaviour of wages following movements in demand‐ and supply‐side conditions.

Suggested Citation

  • Christopher Bowdler & Luca Nunziata, 2007. "Inflation Adjustment and Labour Market Structures: Evidence from a Multi‐country Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 619-642, September.
  • Handle: RePEc:bla:scandj:v:109:y:2007:i:3:p:619-642
    DOI: 10.1111/j.1467-9442.2007.00504.x
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    Cited by:

    1. Gnocchi, Stefano & Lagerborg, Andresa & Pappa, Evi, 2015. "Do labor market institutions matter for business cycles?," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 299-317.
    2. Mónica Correa-López & Matías Pacce & Kathi Schlepper, 2019. "Exploring trend inFLation dynamics in Euro Area countries," Working Papers 1909, Banco de España.
    3. Abbritti, Mirko & Weber, Sebastian, 2010. "Labor market institutions and the business cycle - unemployment rigidities vs. real wage rigidities," Working Paper Series 1183, European Central Bank.
    4. Athina Zervoyianni & Athanasios Anastasiou & Andreas Anastasiou, 2014. "Does central bank independence really matter? Re-assessing the role of the independence of monetary policy-makers in macroeconomic outcomes," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 8(4), pages 427-473.
    5. Fabio Rumler & Johann Scharler, 2011. "Labor Market Institutions And Macroeconomic Volatility In A Panel Of Oecd Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(3), pages 396-413, July.
    6. Bjørnstad, Roger & Kalstad, Kjartan Øren, 2010. "Increased price markup from union coordination: OECD panel evidence," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-37.
    7. Stefano Gnocchi & Evi Pappa, "undated". "Do labor market rigidities matter for business cycles? Yes they do," Working Papers 411, Barcelona School of Economics.
    8. C. Bowdler & L. Nunziata, 2007. "Trade Union Density and Inflation Performance: Evidence from OECD Panel Data," Economica, London School of Economics and Political Science, vol. 74(293), pages 135-159, February.
    9. Cavallero, Alessandro, 2011. "The convergence of inflation rates in the EU-12 area: A distribution dynamics approach," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 341-357, June.
    10. Görg, Holger & Hornok, Cecília & Montagna, Catia & Onwordi, George E., 2018. "Employment to Output Elasticities & Reforms towards Flexicurity: Evidence from OECD Countries," IZA Discussion Papers 12004, Institute of Labor Economics (IZA).
    11. Mónica Correa-López & Agustín García-Serrador & Cristina Mingorance-Arnáiz, 2014. "Product Market Competition, Monetary Policy Regimes and Inflation Dynamics: Evidence from a Panel of OECD Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(4), pages 484-509, August.
    12. Moretti, Laura, 2014. "The determinants of inflation differentials in the euro area," CFS Working Paper Series 451, Center for Financial Studies (CFS).
    13. Faccini, Renato & Rosazza Bondibene, Chiara, 2012. "Labour market institutions and unemployment volatility: evidence from OECD countries," Bank of England working papers 461, Bank of England.
    14. Mrs. Hanan Morsy & Ms. Florence Jaumotte, 2012. "Determinants of Inflation in the Euro Area: The Role of Labor and Product Market Institutions," IMF Working Papers 2012/037, International Monetary Fund.
    15. Monica Correa Lopez & Agustin Garcia Serrador & Ana Cristina Mingorance, 2010. "Product Market Competition and Inflation Dynamics: Evidence from a Panel of OECD Countries," Working Papers 1025, BBVA Bank, Economic Research Department.
    16. International Monetary Fund, 2011. "Spain: Selected Issues," IMF Staff Country Reports 2011/216, International Monetary Fund.
    17. D'Adamo, Gaetano & Rovelli, Riccardo, 2013. "Labor Market Institutions and the Response of Inflation to Macro Shocks in the EU: A Two-Sector Analysis," IZA Discussion Papers 7616, Institute of Labor Economics (IZA).
    18. D'Adamo, Gaetano & Rovelli, Riccardo, 2015. "Labour Market Institutions and Inflation Differentials in the EU," IZA Discussion Papers 9389, Institute of Labor Economics (IZA).
    19. Holger Gorg & Cecilia Hornok & Catia Montagna & George E. Onwordi, 2020. "Employment to output elasticities and reforms towards flexicurity: Evidence from OECD Countries," Discussion Papers 2020-24, University of Nottingham, GEP.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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