Publication
Jan 2012
Workers with relatively low incomes experience envy, whereas those with relatively high incomes experience guilt. The former seek to raise their income, and the latter seek to reduce it. The greater the inflation rate, the greater the degree of wage dispersion, and thus the greater the degree of envy and guilt experienced by the workers. Since the envy effect is stronger than the guilt effect, according to the available empirical evidence, a rise in the inflation rate leads workers to supply more labor, generating a significant positive long-run relation between inflation and output (and employment), for low inflation rates.
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English (PDF, 36 pages, 407 KB) |
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Author | Steffen Ahrens, Dennis J Snower |
Series | Kiel Institute Working Papers |
Issue | 1754 |
Publisher | Kiel Institute for the World Economy |
Copyright | © 2012 Kiel Institute for the World Economy |