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Six variations on fair wages and the long-run Phillips curve

Author

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  • Andrea Vaona

    (Department of Economics (University of Verona))

Abstract

The present paper explores the connection between inflation and unemployment in different models with fair wages both in the short and in the long runs. Under customary assumptions regarding the sign of the parameters of the effort function, more inflation lowers the unemployment rate, though to a declining extent. This is because firms respond to inflation - that spurs effort by decreasing the reference wage - by increasing employment, so to maintain the effort level constant, as implied by the Solow condition. Under wage staggering this effect is stronger because wage dispersion magnifies the impact of inflation on effort. A stronger effect of inflation on unemployment is also produced under varying as opposed to fixed capital, given that in the former case the boom produced by a monetary expansion is reinforced by an increase in investment. Our baseline results are robust to the adoption of a model based on reciprocity in labour relations. Therefore, we provide a new theoretical foundation for recent empirical contributions finding negative long- and short-run effects of inflation on unemployment.

Suggested Citation

  • Andrea Vaona, 2010. "Six variations on fair wages and the long-run Phillips curve," Working Papers 17/2010, University of Verona, Department of Economics.
    • Handle: RePEc:ver:wpaper:17/2010
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    Citations

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    Cited by:

    1. Andrea Vaona, 2013. "The Most Beautiful Variations on Fair Wages and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1069-1084, September.
    2. Andrea Vaona, 2013. "Inflation gifts and endogenous growth through learning-by-doing," Working Papers 09/2013, University of Verona, Department of Economics.
    3. Andrea Vaona, 2015. "Inflation gifts restrictions for structural VARs: evidence from the US," Working Papers 16/2015, University of Verona, Department of Economics.
    4. Andrea Vaona, 2015. "Anomalous empirical evidence on money long-run super-neutrality and the vertical long-run Phillips curve," Working Papers 17/2015, University of Verona, Department of Economics.

    More about this item

    Keywords

    efficiency wages; money growth; long-run Phillips curve; trend inflation; wage staggering; reciprocity in labour relations;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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