Wage-Price Spirals: What is the Historical Evidence?

Jorge Alvarez, John Bluedorn, Niels-Jakob Hansen, Youyou Huang, Evgenia Pugacheva and Alexandre Sollaci

No 2022/221, IMF Working Papers from International Monetary Fund

Abstract: How often have wage-price spirals occurred, and what has happened in their aftermath? We investigate this by creating a database of past wage-price spirals among a wide set of advanced economies going back to the 1960s. We define a wage-price spiral as an episode where at least three out of four consecutive quarters saw accelerating consumer prices and rising nominal wages. Perhaps surprisingly, only a small minority of such episodes were followed by sustained acceleration in wages and prices. Instead, inflation and nominal wage growth tended to stabilize, leaving real wage growth broadly unchanged. A decomposition of wage dynamics using a wage Phillips curve suggests that nominal wage growth normally stabilizes at levels that are consistent with observed inflation and labor market tightness. When focusing on episodes that mimic the recent pattern of falling real wages and tightening labor markets, declining inflation and nominal wage growth increases tended to follow – thus allowing real wages to catch up. We conclude that an acceleration of nominal wages should not necessarily be seen as a sign that a wage-price spiral is taking hold.

Keywords: Inflation; Wages; Wage-price spirals; Labor markets.; wage-price spiral; nominal wage growth; Phillips curve; Phillips Curve estimation; Wage-Price spiral; Real wages; Labor markets; Wage adjustments (search for similar items in EconPapers)
Pages: 29
Date: 2022-11-11
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Related works:
Journal Article: Wage–price spirals: what is the historical evidence? (2024)
Working Paper: Wage-Price Spirals: What is the Historical Evidence? (2023)
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