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Inflation and Wage Expectations of Firms and Employees

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  • Lukas Buchheim
  • Sebastian Link
  • Sascha Möhrle

Abstract

We study the link between expected inflation and wages using novel panel data from German firms and employees. We find that pass-through—the percentage point change in wage growth given a one percentage point change in expected inflation—is small: 0.11–0.17 for firms and 0.03–0.07 for employees. Utilizing variation in the coverage length of collective agreements, we estimate that pass-through at the intensive margin is 1.4-2 times larger than average pass-through, highlighting the importance of wage rigidities for pass-through. Pass-through also rises with the bargaining power of employees. At the extensive margin, expected inflation has little effect on additional wage negotiations.

Suggested Citation

  • Lukas Buchheim & Sebastian Link & Sascha Möhrle, 2024. "Inflation and Wage Expectations of Firms and Employees," CESifo Working Paper Series 11329, CESifo.
    • Handle: RePEc:ces:ceswps:_11329
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    References listed on IDEAS

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    1. Peter Andrebriq & Carlo Pizzinelli & Christopher Roth & Johannes Wohlfart, 2022. "Subjective Models of the Macroeconomy: Evidence From Experts and Representative Samples," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 2958-2991.
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    4. Ruediger Bachmann & Kai Carstensen & Stefan Lautenbacher & Martin Schneider, 2021. "Uncertainty and Change: Survey Evidence of Firms' Subjective Beliefs," NBER Working Papers 29430, National Bureau of Economic Research, Inc.
    5. Iván Werning, 2022. "Expectations and the Rate of Inflation," NBER Working Papers 30260, National Bureau of Economic Research, Inc.
    6. Hajdini, Ina & Knotek, Edward & Leer, John & Pedemonte, Mathieu & Rich, Robert & Schoenle, Raphael, 2022. "Low Passthrough from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation," CEPR Discussion Papers 17356, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    wage expectations; inflation; pass-through; wage-price spirals; bargaining; firms; employees; survey data;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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