This paper investigates the independent effects of wage and productivity growth on inflation utilizing Weintraub's Wage-Cost-Markup (WCM) model. An Alternative WCM model formed by considering asymmetry in adjustment speeds of wage and productivity growth on pricing produces long-run effects conforming to a priori expectations concerning the magnitude and equality of inflation's response to wage and productivity growth. The model also produces improved predictive performance when compared with an estimated equation relating inflation to current unit labor cost growth. The findings offer a price equation that can be employed in econometric models relating inflation to unit labor cost growth.
ASJC Scopus subject areas
- Business, Management and Accounting(all)