Inflation and Labor-Market Adjustment

Daniel Hamermesh

No 1153, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The implications of downward nominal and ex ante real wage rigidity,and of wage contracting for the dispersion of relative wage changes in the presence of price inflation are examined. Rigidity implies that unexpected inflation will raise the variability of relative wage changes; contracting implies unexpected inflation reduces variability. Using data on manufacturing industries for 1955-81, and on private nonfarm industries for1965-81,these hypotheses are studied. The dispersion in relative wage cnanges is reduced by greater price inflation. Most of the reduction is a response to unexpected inflation: Expected inflation has little impact on dispersion.These findings hold for subperiods within the sample, and are robust to different choices of measures of price expectations,including those of the Livingston survey, the Survey Research Center household data, and ARMA forecasts. They stand in striking contrast to the commonly accepted result that price inflation is associated with greater dispersion of relative price changes. They suggest that inflation reduces the ability of relative wages to signal disequilibria among labor markets.

Date: 1983-06
Note: LS
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as Hamermesh, Daniel S. "Inflation and Labor-Market Adjustment." Economica, Vol. 53, (February 1986), pp. 63-73.

Downloads: (external link)
http://www.nber.org/papers/w1153.pdf (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:nbr:nberwo:1153

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w1153

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().