Inflation and income inequality: A link through the job-search process
In this paper I devise a new channel by means of which the (empirically documented) positive correlation between ináation and income inequality can be understood. Available empirical evidence reveals that ináation increases wage dispersion. For this reason, the higher the ináation rate, the higher turns out to be the beneÖt, for a worker, of making additional draws from the distribution of wages, before deciding whether to accept or reject a job o§er. Assuming that some workers have less access to information (wage o§ers) than others, I show that the Gini coe¢ cient of income distribution turns out to be an increasing function of the wage dispersion and, consequently, of the rate of ináation. Two examples are provided to illustrate the mechanism.
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- Christina D. Romer & David Romer, 1999.
"Monetary policy and the well-being of the poor,"
Federal Reserve Bank of Kansas City, issue Q I, pages 21-49.
- Christina D. Romer & David Romer, 1998. "Monetary policy and the well-being of the poor," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 159-201.
- J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, Oxford University Press, vol. 84(1), pages 113-126.
- Ales Bulir, 1998.
"Income Inequality; Does Inflation Matter?,"
IMF Working Papers
98/7, International Monetary Fund.
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