Some Inflationary Aspects of Distributive Conflict:Reassessing Canadian Inflation, Part I

Abstract

This is the first installment of a two-part article, in which we explore the empirical validity of the post-Keynesian “conflict inflation” theory for Canada. By documenting the numerous points of contact between Canadian inflation, on one hand, and institutional power and distributive conflict, on the other, we argue that inflation may be validly understood as a power process insofar as it feeds on social conflict and is systematically associated with the redistribution of income between different income groups. Over the past century, Canadian inflation has tended to redistribute income from capital to labor, from large to small firms, and from the upper to the lower income brackets. Given these facts, Canadian inflation must be understood as a political phenomenon.

Keywords:

• conflict inflation
• distributive conflict
• inequality
• institutional power
• labor unions
• market structure
• monetary policy

JEL Classification Codes:

• B52
• D30
• D40
• E31
• J50

Notes

¹ The evidence we present throughout the paper relies on Pearson correlation coefficients to document the strength of the statistical association between variables. While correlation is a precondition of causation, we recognize that the two are distinct.

² Jonathan Kirshner (1998) agrees that inflation is inherently distributional, creating winners and losers, and so must be understood as a political phenomenon.

³ See, for example, Paul A. Samuelson and William D. Nordhaus (2010, 321).

⁴ The wages and salaries portion of the Canadian top percentile income share only has data running from 1946 to 2010, so to estimate the period from 1926 to 1945 we use the wages and salaries portion of the American top percentile income share as a proxy (with rebasing). The two series have a correlation coefficient of 0.74 between 1946 and 2010, which is sufficiently strong for our estimation purposes (both series are retrieved from the World Top Incomes Database).

⁵ For firms with the requisite market power, the wage demands of workers may be passed along to consumers in the form of higher prices, leaving the size of the markup intact.

⁶ This analysis ignores the linkages between inflation and redistribution within labor, including that between unionized and non-unionized workers. Workers can sometimes be in contest with other workers over income, not just employers — a subject we ignore, while recognizing its validity.

Additional information

Notes on contributors

Scott Aquanno

Scott Aquanno is a lecturer at the University of Ontario (Canada) and a visiting research fellow at the Munk School of Global Affairs (University of Toronto). Jordan Brennan is an economist with Unifor, Toronto (Canada).