A LONG-RUN ANALYSIS OF WAGE-PRICE SPIRAL

Abstract

It is intended in this paper to analyze a phenomenon, so called wage-price spiral, in terms of a simple growth model. In our economy, it is supposed that the commodity market is oligopolistic and each firm sets price in order to get the objective rate of profit which is determined according to the investment plan. On the other hand, money wage rate is settled by collective bargainning between firms and laborers who claim their desirable real wage rate. Hence, if firms fail to get the objective rate of profit, they raise prices, while laborers call for higher money wage in case of their desirable real wage rate not being attained.
In the long run, it will be shown that our economy converges to a steady growth path or a cyclical one. When neither firms' nor laborers' requirements are fulfilled, it is inevitable that wage-price spiral occurs on the steady or the cyclical growth path.