The Impact of Labor Contracts: Evidence from Brazil

Carol A Dole, David A Denslow and Mark Rush

Economic Inquiry, 1999, vol. 37, issue 1, 13-28

Abstract: The conventional Keynesian model suggests that frictions created by nominal wage contracts generate a positive relationship between inflation and output. On the other hand, the new classical/real business cycle theory claims that firms and workers base their employment behavior, and hence output, on the marginal product of labor, ignoring the efficiencies of fixed nominal wage contracts. Using Brazilian data, where nominal wages were indexed by law, tests show that fixed nominal wage contracts insignificantly affected output. Thus, the data support the view that fixed nominal wages play an insignificant role in determining the evolution of output. Copyright 1999 by Oxford University Press.

Date: 1999
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