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Wage Setting in Times of High and Low Inflation

Author

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  • Gödl, Maximilian
  • Gödl-Hanisch, Isabel

Abstract

The recent surge in inflation led many unions and firms to alter their bargaining and wage-setting policies. Using novel German firm-level survey data, we document the extent of state dependence in wage setting across firms and workers during periods of high and low inflation. We find state dependence along the extensive and intensive margins: the average duration of wage agreements shortens from 14.2 to 12.9 months, and the adjustment per pay round increases from 2-4% to 4-6%. We complement these findings with newly compiled union-level panel data on collective bargaining outcomes. We show that the observed state dependence can be rationalized in menu cost and Calvo models of wage setting with heterogeneous firms. We examine the implications of state-dependent wage setting for the long-run effects of trend inflation, the transmission of monetary policy shocks, and the slope of the Phillips curve in an otherwise standard New Keynesian model.

Suggested Citation

  • Gödl, Maximilian & Gödl-Hanisch, Isabel, 2024. "Wage Setting in Times of High and Low Inflation," CEPR Discussion Papers 19403, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19403
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    More about this item

    Keywords

    Phillips curve;

    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
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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