Cost of Living Adjustment and Business Cycles: Disaggregated Evidence
July 1, 2000
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Summary
For a sample of US industries, nominal wage and price inflation follow aggregate price inflation closely during economic expansions. Hence, fluctuations in profit markup and real output are moderate in the face of expansionary demand shocks. During recessions, however, industrial nominal wage deflation exceeds that of the aggregate price level. This is in contras to producers’ attempt to maintain, or even increase, industrial real price inflation during recessions. Consistently, the increase in the profit markup is correlated with an increase in output contraction and a reduction in workers’ real standard of living during recessions.
Subject: Business cycles, Cost of living, Economic growth, Inflation, Labor, Prices, Real wages, Wage indexation, Wages
Keywords: aggregate demand, Business Cycles, Cost of living, Inflation, markup inflation, Nominal Flexibility, nominal wage, output price, price inflation, profit markup, Real wages, standard of living, Wages, WP
Pages:
42
Volume:
2000
DOI:
Issue:
124
Series:
Working Paper No. 2000/124
Stock No:
WPIEA1242000
ISBN:
9781451854718
ISSN:
1018-5941
