Price inflation and wage inflation: A cause-effect relationship?

The question of whether or not price inflation is endogenous with respect to wage inflation has long been a source of theoritical contention between the neoclassicists and post-Keynesians. This paper applies a formal test of causality to examine this price-wage inflation relationship. The findings s...

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Bibliographic Details
Published in:Economics letters 1988, Vol.27 (1), p.35-40
Main Authors: Fosu, Augustin Kwasi, Huq, Shamsul
Format: Article
Language:English
Subjects:
Price rises
Wage inflation
Online Access:Get full text
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Summary:The question of whether or not price inflation is endogenous with respect to wage inflation has long been a source of theoritical contention between the neoclassicists and post-Keynesians. This paper applies a formal test of causality to examine this price-wage inflation relationship. The findings suggest a unidirectional causation from prices to wages, if the percentage annual rate of change of hourly wages of production workers is taken as a measure of wage inflation; and a feedback relationship (partially implied), if the wage inflation is measured by the percentage rate of change of average annual earnings of manufacturing employees.
ISSN:0165-1765
1873-7374
DOI:10.1016/0165-1765(88)90216-9