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Mohou být strnulosti nominálních mezd problémem v situaci deflace způsobené hospodářským růstem?
[Is Nominal Wage Rigidity a Problem in the Case of Deflation Driven by Economic Growth?]

Author

Listed:
  • Tomáš Frömmel
  • Pavel Potužák

Abstract

This paper explores whether downward rigidity in nominal wages has negative impacts on the economy in the case of deflation caused by economic growth. In this situation, growth of real wages may be delivered by a fall in the price level even if nominal wages are constant. Hayek's proposal to stabilize MV is studied in detail. The nominal GDP is stabilized within this framework, and when potential output is growing, the price level might decrease. It is derived that this Hayekian rule would lead to a fall in nominal wages in an economy with positive population growth, which restricts the space for deflation. Friedman's proposal to stabilize prices of factors of production is also examined. It results in weaker deflation than Hayek's proposal and no need for decrease in nominal wages. The next part of the article demonstrates that the Hayekian framework may not require a fall in nominal wages in a converging economy if the labour share of income is gradually increasing, even if population growth is positive.

Suggested Citation

  • Tomáš Frömmel & Pavel Potužák, 2020. "Mohou být strnulosti nominálních mezd problémem v situaci deflace způsobené hospodářským růstem? [Is Nominal Wage Rigidity a Problem in the Case of Deflation Driven by Economic Growth?]," Politická ekonomie, Prague University of Economics and Business, vol. 2020(3), pages 267-289.
    • Handle: RePEc:prg:jnlpol:v:2020:y:2020:i:3:id:1272:p:267-289
    DOI: 10.18267/j.polek.1272
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    References listed on IDEAS

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    More about this item

    Keywords

    deflation; nominal wages; wage rigidities; economic growth; technological progress; population growth; monetary policy; stabilization of nominal GDP; stabilization of prices of factors of production;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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