The Unionization-Inflation Connection

In a study of inflation peaks that preceded monetary-policy adjustments in 21 nations between 1974 and 2004, Tony Caporale of the University of Dayton found that higher peaks were linked with higher levels of unionization. Specifically, a 1-standard-deviation increase in the percentage of public and private employees who were members of unions was associated with an 8.5% higher inflation rate at the peak before monetary adjustment. High levels of unionization can lead to wage inflexibility, which can contribute to consumer price increases.