Please use this identifier to cite or link to this item: http://arks.princeton.edu/ark:/88435/dsp011j92g745w
 Title: Does Inflation 'Grease the Wheels of the Labor Market'? Authors: Card, DavidHyslop, Dean Keywords: wage rigidityinflationflexibility Issue Date: 1-Dec-1995 Citation: In Christina D. Romer and David H. Romer (eds.), Reducing Inflation: Motivation and Strategy, University of Chicago Press, 1997 Series/Report no.: Working Papers (Princeton University. Industrial Relations Section) ; 356 Abstract: One of the basic tenets of Keynesian economics is that labor market institutions cause downward nominal wage rigidity. We attempt to evaluate the evidence that relative wage adjustments occur more quickly in higher-inﬂation environments. Using matched individual wage data from consecutive years, we ﬁnd that about 6-10 percent of workers experience wage rigidity in a 10-percent inﬂation environment, while this proportion rises to over 15 percent when inﬂation is less than 5 percent. By invoking a simple symmetry assumption, we generate counterfactual distributions of wage changes from the distributions of actual wage changes. Using these counterfactual distributions, we estimate that, over the sample period, a 1 percent increase in the inﬂation rate reduces the fraction of workers affected by downward nominal rigidities by about 0.5 percent, and slows the rate of real wage growth by about 0.06 percent. Using state-level data, the analysis of the effects of nominal rigidities is less conclusive. We ﬁnd only a weak statistical relationship between the rate of inﬂation and the pace of relative wage adjustments across local labor markets. URI: http://arks.princeton.edu/ark:/88435/dsp011j92g745w Appears in Collections: IRS Working Papers

Files in This Item:
File Description SizeFormat