Inflation and Labor-Market Adjustment / Daniel S. Hamermesh.

Format:

Book

Author/Creator:

Hamermesh, Daniel S.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1153.

NBER working paper series no. w1153

Language:

English

Subjects (All):

Wages.

Wages--Mathematical models.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1983.

Cambridge, Mass. : National Bureau of Economic Research, 1983.

Summary:

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.

Notes:

Print version record

June 1983.