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Cambridge Journal of Economics Advance Access originally published online on August 9, 2005
Cambridge Journal of Economics 2006 30(2):227-234; doi:10.1093/cje/bei058
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© The Author 2005. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

Conflict inflation: estimating the contributions to wage inflation in Australia during the 1990s

Tim R. L. Fry and Elizabeth Webster*

* Royal Melbourne Institute of Technology and University of Melbourne

Address for correspondence: Elizabeth Webster, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Parkville, Victoria 3010 Australia; e-mail: e.webster{at}unimelb.edu.au

Abstract

One of the major emerging macroeconomic problems during the past century has been the tendency for inflation to accelerate under prolonged periods of full employment. According to Isaac and Kaldor, this arises because the three major objectives of wage earners often conflict. The first objective is the desire to maintain relativities; the second is the desire to have a ‘fair’ share of companies' profits; and the third is a reluctance to allow any encroachment on achieved standards of living owing to unfavourable (exogenous) events. This paper tests how well these three objectives explain wage inflation in Australia using a pseudo-panel data based on the period 1989–2000. The authors find that wages are sensitive to the three major objectives, but not to occupational unemployment rates.

Key Words: Wages • Inflation • NAIRU • Post-Keynesian

JEL classifications: J30, J38, J63, E24, E240

Manuscript received January 19, 2001; final version received September 24, 2004.


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