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Working Paper

Firms' Wage Adjustments: A Break from the Past?

Despite advances in understanding the policies that cause inflation, economistsknow little about inflation’s manifestations and transmission in the marketplace. Forexample, how does inflation affect wages in an economy composed of heterogeneousagents making individual optimizing decisions? We know that there is a wide dispersion of wage changes in any year (Groshen and Schweitzer 1998). In this paper we ask whether inflation and its changes alter the distribution of wage shocks—rather than being neutral for the distribution as conventional theories of wage adjustment would suggest.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Groshen, Erica, and Mark E. Schweitzer. 1999. “Firms' Wage Adjustments: A Break from the Past?” Federal Reserve Bank of Cleveland, Working Paper No. 99-08.