Abstract
One of the major emerging macroeconomic problems during the past century has been the tendency for inflation to accelerate under prolonged periods of full employment. According to Isaac and Kaldor, this arises because the three major objectives of wage earners often conflict. The first objective is the desire to maintain relativities; the second is the desire to have a ‘fair’ share of companies' profits; and the third is a reluctance to allow any encroachment on achieved standards of living owing to unfavourable (exogenous) events. This paper tests how well these three objectives explain wage inflation in Australia using a pseudo-panel data based on the period 1989–2000. The authors find that wages are sensitive to the three major objectives, but not to occupational unemployment rates.
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