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.