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THE IMPACT OF LABOR CONTRACTS: EVIDENCE FROM BRAZIL
Author(s) -
Dole Carol A.,
Denslow David A.,
Rush Mark
Publication year - 1999
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1999.tb01413.x
Subject(s) - economics , wage , inflation (cosmology) , business cycle , new keynesian economics , marginal product of labor , efficiency wage , real wages , product (mathematics) , labour economics , marginal product , production (economics) , monetary economics , microeconomics , keynesian economics , monetary policy , physics , geometry , mathematics , theoretical physics
The conventional Keynesian model suggests that frictions created by nominal wage contracts generate a positive relationship between inflation and output. On the other hand, the New Classical/Real Business Cycle theory claims that firms and workers base their employment behavior, and hence output, on the marginal product of labor ignoring the efficiencies of fixed nominal wage contracts. Using Brazilian data, where nominal wages were indexed by law, tests show that fixed nominal wage contracts insignificantly affected output. Thus, the data support the view that fixed nominal wages play an insignificant role in determining the evolution of output. ( JEL E31)