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Inflation, the Skill Premium and the labor share: An empirical and theoretical analysis

Author

Listed:
  • Tiago Neves Sequeira

    (University of Coimbra, CeBER and Faculty of Economics)

  • Pedro Lima

    (University of Coimbra, CeBER and Faculty of Economics)

  • Joshua Duarte

    (University of Coimbra, CeBER and Faculty of Economics)

Abstract

We develop an overlapping generations endogenous growth model with cash-in-advance constraints for (i) consumers and (ii) R&D firms which is consistent with an effect of inflation on the skill-premium labor share. Inflation decreases the skill premium in both cases and decreases the labor share through (i) which it increases through (ii). The newly described effect of inflation on the labor share is consistent with empirical evidence for a short-run effect.

Suggested Citation

  • Tiago Neves Sequeira & Pedro Lima & Joshua Duarte, 2025. "Inflation, the Skill Premium and the labor share: An empirical and theoretical analysis," CeBER Working Papers 2025-04, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2025-04
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    Keywords

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    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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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