Inflation Dynamics and the Labour Share in the UK
In recent years UK real wages have been growing faster than labour factor productivity, implying that the labour share has been rising. This paper looks at various definitions of the labour share and derives a measure for the UK, which appears positively correlated with the growth rate of the UK gross value added price deflator. Following Layard, Nickell and Jackman (1991), we investigate the relationship between inflation and the share more formally by estimating a pricing equation or “new Phillips curve” obtained from a structural dynamic model of price setting based on Rotemberg (1982) and extended to capture employment adjustment costs and the openness of the UK economy. This model nests the Sbordone (1998) and Gali, Gertler and Lopez-Salido (2000) relationship between inflation and marginal costs in the limiting case of a constant equilibrium mark-up and no employment adjustment costs. Our findings suggest that there is a stable ceteris paribus relationship between inflation and the labour share over the last 30 years in the UK and so the share contains information that helps to predict inflation.
|Date of creation:||2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (020) 7601 4444
Fax: +44 (020) 7601 4771
Web page: http://www.bankofengland.co.uk/publications/externalmpcpapers/index.htmEmail:
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001.
"European Inflation Dynamics,"
NBER Working Papers
8218, National Bureau of Economic Research, Inc.
- Jacques R. Artus, 1984. "An Empirical Evaluation of the Disequilibrium Real Wage Rate Hypothesis," NBER Working Papers 1404, National Bureau of Economic Research, Inc.
- Bentolila Samuel & Saint-Paul Gilles, 2003.
"Explaining Movements in the Labor Share,"
The B.E. Journal of Macroeconomics,
De Gruyter, vol. 3(1), pages 1-33, October.
- Bentolila, Samuel & Saint-Paul, Gilles, 1998. "Explaining Movements in the Labour Share," CEPR Discussion Papers 1958, C.E.P.R. Discussion Papers.
- Samuel Bentolila & Gilles Saint Paul, 1999. "Explaining movements in the labor share," Economics Working Papers 374, Department of Economics and Business, Universitat Pompeu Fabra.
- Bentollia, S. & Saint-Paul, G., 1999. "Explaining Movements in the Labor Share," Papers 9905, Centro de Estudios Monetarios Y Financieros-.
- Blanchard, Olivier, 1998.
"Revisiting European Unemployment : Unemployment, Capital Accumulation and Factor Prices,"
Economic and Social Research Institute (ESRI), number GL28.
- Olivier Blanchard, 1998. "Revisiting European Unemployment: Unemployment, Capital Accumulation, and Factor Prices," NBER Working Papers 6566, National Bureau of Economic Research, Inc.
- Caballero, Ricardo J. & Hammour, Mohamad L., 1998.
"Jobless growth: appropriability, factor substitution, and unemployment,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 48(1), pages 51-94, June.
- Caballero, R.J. & Hammour, M.L., 1997. "Jobless Growth: Appropriability, Factor-Substitution, and Unemployment," Working papers 97-18, Massachusetts Institute of Technology (MIT), Department of Economics.
- Ricardo J. Caballero & Mohamad L. Hammour, 1997. "Jobless Growth: Appropriability, Factor Substitution, and Unemployment," NBER Working Papers 6221, National Bureau of Economic Research, Inc.
- Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 655-690, May.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- Kang, Joo-Hoon & Jeong, Ugyeong & Bae, Joo-Han, 1998. "Cyclicality of markups and real wages in Korea," Economics Letters, Elsevier, vol. 60(3), pages 343-349, September.
- Edward J Green & Robert H Porter, 1997.
"Noncooperative Collusion Under Imperfect Price Information,"
Levine's Working Paper Archive
1147, David K. Levine.
- Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
- Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
- Henley, Andrew, 1987. "Labour's Shares and Profitability Crisis in the U.S.: Recent Experience and Post-war Trends," Cambridge Journal of Economics, Oxford University Press, vol. 11(4), pages 315-30, December.
- Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
- Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
When requesting a correction, please mention this item's handle: RePEc:mpc:wpaper:02. 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: (William Naughton)The email address of this maintainer does not seem to be valid anymore. Please ask William Naughton to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.