Inflation, the Skill Premium and the labor share: An empirical and theoretical analysis

Tiago Neves Sequeira, Pedro Lima and Joshua Duarte
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Tiago Neves Sequeira: University of Coimbra, CeBER and Faculty of Economics
Pedro Lima: University of Coimbra, CeBER and Faculty of Economics
Joshua Duarte: University of Coimbra, CeBER and Faculty of Economics

No 2025-04, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: We develop an overlapping generations endogenous growth model with cash-in-advance constraints for (i) consumers and (ii) R&D firms which is consistent with an effect of inflation on the skill-premium labor share. Inflation decreases the skill premium in both cases and decreases the labor share through (i) which it increases through (ii). The newly described effect of inflation on the labor share is consistent with empirical evidence for a short-run effect.

Keywords: inflation; labor share; human capital (search for similar items in EconPapers)
JEL-codes: E24 J64 L11 O33 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2025-12
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