Is Hypoinflation Good Policy?
One argument against a policy to achieve absolute price stability is that workers resist pay cuts. We examine several Canadian microdata sources and corroborate earlier evidence of pay-cut resistance, particularly recently as inflation has approached zero. We then use data on industrial sectors to estimate that pay-cut resistance reduced employment growth by from 0.6 to 1.5 percent per annum from 1993 to 1995. We also estimate a model of wage settlements, treating pay freezes and pay cuts as censored data, which implies that pay-cut resistance may have increased the annual unemployment rate by as much as 2 percent during the same period. In view of these results, the case for very low inflation targets should be reexamined.
Year of publication: |
1998
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Authors: | Simpson, Wayne ; Cameron, Norman E. ; Hum, Derek |
Published in: |
Canadian Public Policy. - University of Toronto Press. - Vol. 24.1998, 3, p. 291-308
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Publisher: |
University of Toronto Press |
Saved in:
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