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Labor market structures and the sacrifice ratio

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  • Bowdler, Christopher
  • Nunziata, Luca

Abstract

Using OECD panel data for 1961-2000 we provide evidence that the output cost associated with disinflation (the sacrifice ratio) decreases with coordination between wage-setters in the labor market. The relationship holds for alternative measures of labor market coordination and after controlling for standard sacrifice ratio determinants. The sign of the relationship is robust across alternative definitions of the sacrifice ratio, but its statistical significance varies. Our results also indicate that more stringent employment protection laws increase sacrifice ratios, but the effect is not significant at conventional levels. We provide explanations for our findings based on the speed of nominal wage adjustment in New Keynesian models.

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  • Bowdler, Christopher & Nunziata, Luca, 2010. "Labor market structures and the sacrifice ratio," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 816-826, September.
    • Handle: RePEc:eee:jmacro:v:32:y:2010:i:3:p:816-826
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    Cited by:

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    3. Martin Stojanovikj & Goran Petrevski, 2024. "Inflation targeting and disinflation costs in Emerging Market economies," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(1), pages 283-312, February.
    4. Magkonis, Georgios & Zekente, Kalliopi-Maria, 2020. "Inflation-output trade-off: Old measures, new determinants?," Journal of Macroeconomics, Elsevier, vol. 65(C).
    5. Joseph Daniels & Sandeep Mazumder & David VanHoose, 2015. "Implications of Globalization for the Output-inflation Relationship: an Assessment," Open Economies Review, Springer, vol. 26(1), pages 39-60, February.
    6. Watson, Anna, 2016. "Trade openness and inflation: The role of real and nominal price rigidities," Journal of International Money and Finance, Elsevier, vol. 64(C), pages 137-169.
    7. Mazumder, Sandeep, 2014. "The sacrifice ratio and core inflation," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 400-421.
    8. Robert J. Tetlow, 2022. "How Large is the Output Cost of Disinflation?," Finance and Economics Discussion Series 2022-079, Board of Governors of the Federal Reserve System (U.S.).
    9. Chris Loewald & Konstantin Makrelov & Ekaterina Pirozhkova, 2022. "TheshorttermcostsofreducingtrendinflationinSouthAfrica," Working Papers 11029, South African Reserve Bank.

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