IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1153.html
   My bibliography  Save this paper

Inflation and Labor-Market Adjustment

Author

Listed:
  • Daniel S. Hamermesh

Abstract

The implications of downward nominal and ex ante real wage rigidity,and of wage contracting for the dispersion of relative wage changes in the presence of price inflation are examined. Rigidity implies that unexpected inflation will raise the variability of relative wage changes; contracting implies unexpected inflation reduces variability. Using data on manufacturing industries for 1955-81, and on private nonfarm industries for1965-81,these hypotheses are studied. The dispersion in relative wage cnanges is reduced by greater price inflation. Most of the reduction is a response to unexpected inflation: Expected inflation has little impact on dispersion.These findings hold for subperiods within the sample, and are robust to different choices of measures of price expectations,including those of the Livingston survey, the Survey Research Center household data, and ARMA forecasts. They stand in striking contrast to the commonly accepted result that price inflation is associated with greater dispersion of relative price changes. They suggest that inflation reduces the ability of relative wages to signal disequilibria among labor markets.

Suggested Citation

  • Daniel S. Hamermesh, 1983. "Inflation and Labor-Market Adjustment," NBER Working Papers 1153, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1153
    Note: LS
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1153.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Vining, Daniel R, Jr & Elwertowski, Thomas C, 1976. "The Relationship between Relative Prices and the General Price Level," American Economic Review, American Economic Association, vol. 66(4), pages 699-708, September.
    2. John A. Carlson, 1977. "A Study of Price Forecasts," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 27-56, National Bureau of Economic Research, Inc.
    3. Cukierman, Alex & Wachtel, Paul, 1982. "Relative Price Variability and Nonuniform Inflationary Expectations," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 146-157, February.
    4. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-1085, December.
    5. Daniel S. Hamermesh, 1970. "Wage Bargains, Threshold Effects, and the Phillips Curve," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 501-517.
    6. repec:bla:econom:v:37:y:1970:i:147:p:227-38 is not listed on IDEAS
    7. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    8. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
    9. Parks, Richard W, 1978. "Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 79-95, February.
    10. Beach, Charles M & MacKinnon, James G, 1978. "A Maximum Likelihood Procedure for Regression with Autocorrelated Errors," Econometrica, Econometric Society, vol. 46(1), pages 51-58, January.
    11. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    12. Joseph G. Altonji, 1982. "The Intertemporal Substitution Model of Labour Market Fluctuations: An Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(5), pages 783-824.
    13. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    14. Wachter, Michael L, 1970. "Cyclical Variation in the Interindustry Wage Structure," American Economic Review, American Economic Association, vol. 60(1), pages 75-84, March.
    15. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(2), pages 171-196.
    16. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(1), pages 171-196.
    17. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-754, Sept./Oct.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pagano, Marco, 1985. "Relative price variability and inflation : The Italian evidence," European Economic Review, Elsevier, vol. 29(2), pages 193-223.
    2. Saghir Pervaiz Ghauri & Rizwan Raheem Ahmed & Jolita Vveinhardt & Dalia Streimikiene, 2017. "Estimation of Relationship between Inflation and Relative Price Variability: Granger Causality and ARDL Modelling Approach," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 19(44), pages 249-249, February.
    3. repec:eee:labchp:v:2:y:1986:i:c:p:1001-1035 is not listed on IDEAS
    4. Richard Ashley & Haichun Ye, 2012. "On the Granger causality between median inflation and price dispersion," Applied Economics, Taylor & Francis Journals, vol. 44(32), pages 4221-4238, November.
    5. María Ángeles Caraballo & Carlos Dabús., 2008. "The Determinants of Relative Price Variability: Further Evidence from Argentina," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(132), pages 235-255.
    6. Michael Aarstol, 1999. "Inflation, Inflation Uncertainty, and Relative Price Variability," Southern Economic Journal, John Wiley & Sons, vol. 66(2), pages 414-423, October.
    7. Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 132-152, February.
    8. Robert H. Topel & Finis Welch, 1986. "Efficient Labor Contracts with Employment Risk," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 490-507, Winter.
    9. Randal J. Verbrugge, 1998. "Cross-Sectional and Longitudinal Inflation Asymmetries," Macroeconomics 9809018, University Library of Munich, Germany.
    10. Ardeni, Pier-Giorgio & Rausser, Gordon C., 1990. "Alternative subsidy reduction paths: the role of fiscal and monetary policy linkages," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5074f3vq, Department of Agricultural & Resource Economics, UC Berkeley.
    11. Benjamin Eden, 1994. "Inflation and Price Dispersion: An Analysis of Micro Data," Bank of Israel Working Papers 1994.13, Bank of Israel.
    12. Ioanna Reziti, 2005. "The Relationship Between Macroeconomic Variables and Relative Price Variability in Greek Agriculture," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(1), pages 111-119, February.
    13. Allan Drazen & Daniel S. Hamermesh, 1986. "Inflation and Wage Dispersion," NBER Working Papers 1811, National Bureau of Economic Research, Inc.
    14. Smith, Andrew & MacKinnon, Neil J, 1987. "Inflation and Relative Price Variability: The U.K. Experience over the Last 30 Years," Scottish Journal of Political Economy, Scottish Economic Society, vol. 34(2), pages 145-160, May.
    15. David Demery & Nigel W. Duck, 2005. "Relative Prices as Aggregate Supply Shocks with Trend Inflation," Bristol Economics Discussion Papers 05/570, School of Economics, University of Bristol, UK.
    16. Mª Ángeles Caraballo Pou & Carlos Dabús & Diego Caramuta, 2006. "A Non-linear "Inflation-Relative Prices Variability" Relationship: Evidence from Latin America," Economic Working Papers at Centro de Estudios Andaluces E2006/09, Centro de Estudios Andaluces.
    17. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
    18. Andrade, Isabel, 1992. "The relationship between inflation and relative price variability: A multivariate approach," Discussion Paper Series In Economics And Econometrics 9203, Economics Division, School of Social Sciences, University of Southampton.
    19. repec:kap:iaecre:v:11:y:2005:i:1:p:111-119 is not listed on IDEAS
    20. David Demery & Nigel W. Duck, 2008. "Relative Prices as Aggregate Supply Shocks with Trend Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2‐3), pages 389-408, March.
    21. Constantina Kottaridi & Mendez-Carbajo Diego & D. Thomakos Dimitrios, 2009. "Inflation Dynamics and the Cross-Sectional Distribution of Prices in the E.U. Periphery," Springer Books, in: Takashi Kamihigashi & Laixun Zhao (ed.), International Trade and Economic Dynamics, pages 449-475, Springer.
    22. Paul Armknecht & Mick Silver, 2014. "Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(2), pages 225-244, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1153. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.