IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this book chapter

Autonomous Wage Inflation

Listed author(s):
  • Schlicht, Ekkehart

This paper develops a theory of stagflation, based on turnover-efficiency-wage theory. In these theories, wages are forward-looking, i.e., set to keep incumbents with the firm. The employed workers apply for better jobs and compete with unemployed applicants. An employed applicant is, however, preferred to an unemployed applicant, or the long-term unemployed, who, with their outdated skills, form an essentially non-competing group. Consider now the case that the monetary authority succeeds in stabilizing the price level permanently. Start from efficiency-wage unemployment equilibrium. The skills of the unemployed will, after a while, become outdated. This reduces the „effective” rate of unemployment and causes the labor market to tighten. Turnover increases, and the former equilibrium is destroyed. The individual firm will raise wages in order to reduce turnover costs. Costs increase, causing prices to also increase. The monetary authority reacts with restrictive policies, and unemployment increases. This leads to a new turnover-efficiency-wage equilibrium, and the process continues. The argument implies that wage inflation emerges after a while at all employment levels. This paper concludes by discussing some of the consequent policy implications.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

in new window

This chapter was published in: Schlicht, Ekkehart , , pages , .
This item is provided by University of Munich, Department of Economics in its series Chapters in Economics with number 11090.
Handle: RePEc:lmu:muench:11090
Contact details of provider: Postal:
Ludwigstr. 28,80539 Munich, Germany

Phone: +49-(0)89-2180-3405
Fax: +49-(0)89-2180-3510
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lmu:muench:11090. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.