Research Summary
Research Summary
Inflation Uncertainty and the Wage Bargain
Description
Joint work with Hans-Joachim Voth, Universitat Pompeu Fabra, Barcelona.
Trade unions often seem to behave in a more militant fashion when inflation rises. We provide the first theory as to why this should be so. We argue that uncertainty about the rate of inflation makes each extra dollar more valuable to the trade union, thus increasing its desire to hold out for a larger share of the pie. Thus inflation uncertainty increases trade union bargaining power. By contrast, when firms are free to set employment after price levels are known, uncertainty reduces firm bargaining power. Thus inflation leads to a redistribution from capital to labour. We test the theory using a data set of G7 countries since 1973.
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