@techreport{Holden2004Wage,
abstract = {This paper reviews the literature on the effects of low steady-state inflation on wage
formation, focusing on four different effects. First, under low inflation, downward nominal
wage rigidity (DNWR) may prevent real wage cuts that would have happened had inflation
been higher. Second, wages (and prices) are given in nominal contracts, and inflation affects
both how often wages are adjusted, and to what extent wages are set in a forward-looking
manner. Third, incomplete labour contracts may provide workers with scope for inflicting
costs on the firm without violating the contract, thus forcing the firm to accept a rise in
nominal wages. Fourth, if effort depends on wages relative to a reference level, and workers
and firms underweight inflation when updating the reference level, positive but moderate
inflation may reduce wage pressure. The paper ends by a brief survey of empirical evidence,
and a discussion of whether labour markets may adapt to a low inflation environment.},
author = {Steinar Holden},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {J3; J5; E31; 330; wage formation; nominal contracts; inflation; Lohntheorie; Lohnrigidit\"{a}t; Inflation; Theorie},
language = {eng},
number = {1252},
title = {Wage formation under low inflation},
type = {CESifo working papers},
url = {http://hdl.handle.net/10419/18890},
year = {2004}
}
