Empirical Structural Evidence on Wages, Prices and Employment in the Us

53 Pages Posted: 27 Apr 2000 Last revised: 7 Aug 2010

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics

Date Written: October 1986

Abstract

In this paper, I investigate US post war price, wage and employment dynamics by identifying and estimating a price and a wage equation. I reach the following two main conclusions: Nominal wages adjust faster to prices than prices do to nominal wages. This may be taken as evidence that price inertia is more important empirically than nominal wage inertia. The wage equation implies that the effect on wage inflation of a permanent increase in unemployment, given prices, is largely temporary. This can be interpreted in various ways. One is that, if the wage equation is interpreted as a Phillips curve, both the rate of change and the level of unemployment play an important role in wage determination. The methodology of the paper is somewhat different from the traditional approach to the estimation of price and wage equations. Its spirit is to impose on the reduced form a just identifying set of restrictions. In this way, a structural interpretation is made possible, while the data are left free to speak.

Suggested Citation

Blanchard, Olivier J., Empirical Structural Evidence on Wages, Prices and Employment in the Us (October 1986). NBER Working Paper No. w2044. Available at SSRN: https://ssrn.com/abstract=227268

Olivier J. Blanchard (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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