Economics at your fingertips  

Inflation? It’s Import Prices and the Labor Share!

Lance Taylor and Nelson Barbosa-Filho

International Journal of Political Economy, 2021, vol. 50, issue 2, 116-142

Abstract: Recognizing that inflation of the value of output and its costs of production must be equal, we focus on a cost-based macroeconomic structuralist approach in contrast to micro-oriented monetarist analysis. For decades the import and profit shares of cost have risen, while the wage share has declined to around 50% with money wage increases lagging the sum of growth rates of prices and productivity. Conflicting claims to income are the underlying source of inflationary pressure. Contemporary structuralist theory suggests that conflicting income claims set the inflation rate. Firms can mark up costs but workers have latent bargaining power over the labor share that they can exercise. Import costs and policy repercussions complicate the picture, but a simple vector error correction model and visual analysis suggest that money wages would have to grow 1% point faster than prices plus productivity for several years if the Fed is to meet a 3% inflation target. The results pose a Biden policy trilemma: (i) the only path toward a more egalitarian size distribution of income is through a rising labor share (money wage growth exceeds price plus productivity growth), (ii) which would provoke faster inflation with feedback to rising interest rates, and (iii) the resulting asset price deflation likely facing political resistance from Wall Street and affluent households.

Date: 2021
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Inflation? It's Import Prices and the Labor Share! (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

DOI: 10.1080/08911916.2021.1920242

Access Statistics for this article

More articles in International Journal of Political Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2022-01-17
Handle: RePEc:mes:ijpoec:v:50:y:2021:i:2:p:116-142