Conflict Inflation: Estimating the Contributions to Wage Inflation in Australia During the 1990s

Tim Fry and Elizabeth Webster ()

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: One of the major emerging macroeconomic problems during the century has been the tendency for inflation to accelerate under prolonged periods of full employment. According to Isaac (1977) and Kaldor (1996, 5th Lecture), this arises from the process of wage determination common to most western economics. They argue that there are three major objectives of wage earners that are in competition with one another. First, the desire to maintain relativities; secondly, the desire to have a ‘fair’ share of companies profits; and thirdly, a reluctance to allow any encroachment on achieved standards due to unfavourable (exogenous) events. If companies have differing rates of profit then the first objective will conflict with the second. If there are adverse changes the terms of trade, then the third objective will cause inflation. This paper tests how well the three objectives of wage earners cited above in the context of their power to effect these objectives, explains wage inflation in Australia using a times series of micro wage rate rates for detailed occupations and industries for the period 1989 to 2000. We find that wages are sensitive to the three major objectives, but not occupational unemployment rates.

Pages: 15 pages
Date: 2003-03
New Economics Papers: this item is included in nep-mac and nep-pke
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Journal Article: Conflict inflation: estimating the contributions to wage inflation in Australia during the 1990s (2006)
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