Abstract
Most empirical studies of the U.S. wage-price relationship in the pre-fuel crisis period found wages systematically lagging prices, even in the long run. This finding was considered to be problematical or disturbing since it contradicts standard expectations generated by the competition model. It is here hypothesized that the empirical findings are affected by compositional-aggregation bias. This hypothesis is tested (and supported) by applying a standard (Phillips-Curve) wage equation to a regionally disaggregated body of data using individual SMSA observations.
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Izraeli, O., Kellman, M. The “rationality” hypothesis and the spatially disaggregated U.S. labor market. Ann Reg Sci 14, 39–50 (1980). https://doi.org/10.1007/BF01284202
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DOI: https://doi.org/10.1007/BF01284202