Wage Dispersion and Country Price Levels
The purpose of this paper was to investigate whether there is a relationship between the degree of wage dispersion in a country and its price level relative to other countries, compared in a common currency. It was found that once a country's real per capita income and deviations of its exchange rate from its trend value are allowed for, there is a pervasive relationship between wage dispersion and prices. Low wage dispersion, defined as a relatively small difference between the median wage and that of the lowest paid decile of workers, is associated with high price levels. The relationship applies more frequently to service prices than to goods prices, but where it does apply, the effects of wage dispersion are as large for goods as for services.
|Date of creation:||May 1997|
|Date of revision:|
|Publication status:||published as Wage Dispersion and Country Price Levels , Robert E. Lipsey, Birgitta Swedenborg. in International and Interarea Comparisons of Income, Output, and Prices , Heston and Lipsey. 1999|
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- Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
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- Falvey, Rodney E & Gemmell, Norman, 1991. "Explaining Service-Price Differences in International Comparisons," American Economic Review, American Economic Association, vol. 81(5), pages 1295-309, December.
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