A structuralist analysis of inflation and stabilization

ABSTRACT This paper develops a model in which the distributive conflict between capital and labor is the driving force which generates inflationary pressures in a market economy. In the model the rate of inflation is a function of the capacity of firms to pass increases in costs to prices and of the relative power of workers and employees associations in the process of collective bargaining. One of the main results of this analytical framework is that the structure of the capital/labor relations in a country, the process of collective bargaining and the structure of unions organizations are important determinants of inflationary pressures. As a result, institutional reforms which promote cooperation on capital/labor relations are of great importance in stabilization policies, if the social costs of stabilization are to be minimized.