Maximilian Gödl (Universität der Bundeswehr München): "Wage Setting in Times of Low and High Inflation"

The recent surge in inflation led many unions and firms to alter their bargaining and wage-setting policies. Using German firm-level survey data, we document the extent of state dependency in firms’ wage-setting behavior across firms and workers given low vs. high inflation environments. The granular micro-level data also allows for studying heterogeneous patterns across sectors, firms, and workers. Embedding the empirical findings in a heterogeneous firm New Keynesian model, we then analyze the implications of heterogeneous state-dependent wage-setting behavior for shock transmission and propagation through the aggregate economy. Lastly, we discuss the role of nominal frictions as well as monopoly and monopsony power and how these features alter central bank monetary policy and the slope of the Phillips curve.