Inflation and Labor-Market Adjustment
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.
|Date of creation:||Jun 1983|
|Date of revision:|
|Publication status:||published as Hamermesh, Daniel S. "Inflation and Labor-Market Adjustment." Economica, Vol. 53, (February 1986), pp. 63-73.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
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.:
- Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
- Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
- 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.
- Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(1), pages 171-196.
- Wachter, Michael L, 1970. "Cyclical Variation in the Interindustry Wage Structure," American Economic Review, American Economic Association, vol. 60(1), pages 75-84, March.
- Hamermesh, Daniel S, 1970. "Wage Bargains, Threshold Effects, and the Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 501-17, August.
- Rees, Albert, 1970. "The Phillips Curve as a Menu for Policy Choice," Economica, London School of Economics and Political Science, vol. 37(147), pages 227-38, August.
- Altonji, Joseph G, 1982. "The Intertemporal Substitution Model of Labour Market Fluctuations: An Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 49(5), pages 783-824, Special I.
- Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
- Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(2), pages 171-196.
- Parks, Richard W, 1978. "Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 79-95, February.
- Cukierman, Alex & Wachtel, Paul, 1982. "Relative Price Variability and Nonuniform Inflationary Expectations," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 146-57, February.
- 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 1059-85, December.
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
- 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 721-54, Sept./Oct.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1153. 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: ()
If references are entirely missing, you can add them using this form.