THE IMPACT OF LABOR CONTRACTS: EVIDENCE FROM BRAZIL

Authors


1 Assistant Professor, University of North Carolina at Charlotte, Phone 1–704-547-4171, Fax 1–704-547-6442 E-mail Cadole@uncc.email.edu

2 Professor, University of Florida, Gainesville, Phone 1–352-392-0151, Fax 1–352-392-7860 E-mail Denslow@bebr.cba.ufl.edu

3 Professor, University of Florida, Gainesville, Phone 1–352-392-0318, Fax 1–352-392-7860 E-mail rush@dale.cba.ufl.edu

Abstract

The conventional Keynesian model suggests that frictions created by nominal wage contracts generate a positive relationship between inflation and output. On the other hand, the New Classical/Real Business Cycle theory claims that firms and workers base their employment behavior, and hence output, on the marginal product of labor ignoring the efficiencies of fixed nominal wage contracts. Using Brazilian data, where nominal wages were indexed by law, tests show that fixed nominal wage contracts insignificantly affected output. Thus, the data support the view that fixed nominal wages play an insignificant role in determining the evolution of output. (JEL E31)

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