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INFLATION AND THE DISPERSION OF REAL WAGES *
Author(s) -
Kumar Alok
Publication year - 2008
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2008.00484.x
Subject(s) - economics , wage dispersion , inflation (cosmology) , dispersion (optics) , wage , price dispersion , real wages , monetary economics , labour economics , monetary policy , efficiency wage , keynesian economics , econometrics , physics , theoretical physics , optics
The article studies the effects of inflation on real wage dispersion in a search‐monetary framework. The economy is characterized by frictions in both the goods and the labor markets. In the goods market, buyers and sellers bargain over prices, whereas in the labor market firms post wage offers. In equilibrium, a lower inflation rate increases the dispersion of real wages. This result is consistent with both the observed trends in wage dispersion and the inflation rate witnessed in the 1980s and the 1990s in the United States and the empirical literature linking reduced inflation to greater wage dispersion.