Inflation and income inequality: A link through the job-search process

Rubens Cysne

No 557, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: In this paper I devise a new channel by means of which the (empirically documented) positive correlation between ináation and income inequality can be understood. Available empirical evidence reveals that ináation increases wage dispersion. For this reason, the higher the ináation rate, the higher turns out to be the beneÖt, for a worker, of making additional draws from the distribution of wages, before deciding whether to accept or reject a job o§er. Assuming that some workers have less access to information (wage o§ers) than others, I show that the Gini coe¢ cient of income distribution turns out to be an increasing function of the wage dispersion and, consequently, of the rate of ináation. Two examples are provided to illustrate the mechanism.

Date: 2004-08-01
New Economics Papers: this item is included in nep-cba and nep-dge
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Citations: View citations in EconPapers (5)

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