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Inflation And The Dispersion Of Real Wages

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  • Alok Kumar

Abstract

The article studies the effects of inflation on real wage dispersion in a search‐monetary framework. The economy is characterized by frictions in both the goods and the labor markets. In the goods market, buyers and sellers bargain over prices, whereas in the labor market firms post wage offers. In equilibrium, a lower inflation rate increases the dispersion of real wages. This result is consistent with both the observed trends in wage dispersion and the inflation rate witnessed in the 1980s and the 1990s in the United States and the empirical literature linking reduced inflation to greater wage dispersion.

Suggested Citation

  • Alok Kumar, 2008. "Inflation And The Dispersion Of Real Wages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 377-399, May.
    • Handle: RePEc:wly:iecrev:v:49:y:2008:i:2:p:377-399
    DOI: 10.1111/j.1468-2354.2008.00484.x
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    Cited by:

    1. Alok Kumar, 2013. "Inflation, Redistribution, and Real Activities," Department Discussion Papers 1302, Department of Economics, University of Victoria.
    2. Alok Kumar, 2008. "Capital Tax, Minimum Wage, and Labor Market Outcomes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 133-154, January.
    3. Gomis-Porqueras, Pedro & Huangfu, Stella & Sun, Hongfei, 2020. "The role of search frictions in the long-run relationships between inflation, unemployment and capital," European Economic Review, Elsevier, vol. 123(C).
    4. Seip, Knut Lehre & McNown, Robert, 2015. "Does employees’ compensation vary with corporate profit?," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 281-290.

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N3 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy

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