Indexation and the Effect of a Price-Level Shock on Relative Wage Variability

Empirical studies indicate that price-level shocks increase the variability of relative prices but reduce the variability of relative wages. Some authors suggest that the discrepancy reflects an omitted variable, the degree of wage indexation. We use a proxy for the degree of wage indexation in the...

Full description

Saved in:
Bibliographic Details
Published in:The review of economics and statistics 1988-08, Vol.70 (3), p.524-526
Main Authors: Holland, A. Steven, Fackler, James S.
Format: Article
Language:English
Subjects:
Cost of living
Cost of living adjustments
Demand shocks
Econometrics
Economic indices
Employment indices
Excess demand
Indexation
Industrial production indices
Inflation rates
Positive price shocks
Price levels
Price shocks
Prices
Regression analysis
Relative prices
Relative wages
Unanticipated inflation
Wages & salaries
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Empirical studies indicate that price-level shocks increase the variability of relative prices but reduce the variability of relative wages. Some authors suggest that the discrepancy reflects an omitted variable, the degree of wage indexation. We use a proxy for the degree of wage indexation in the United States--the prevalence of cost-of-living adjustment clauses in major collective bargaining agreements--to reexamine the relationship between price-level shocks and relative wage variability. We find that although it tends to reduce relative wage variability, indexation is not responsible for the absence of a positive effect of a price-level shock.
ISSN:0034-6535
1530-9142
DOI:10.2307/1926794