@article{GuerreiroEtAl2026ConflictCosts,
    author = {Joao Guerreiro and Jonathon Hazell and Chen Lian and Christina Patterson},
    title = {Why Do Workers Dislike Inflation? Wage Erosion and Conflict Costs},
    journal = {Econometrica},
    volume = {94},
    number = {5},
    pages = {1651--1684},
    year = {2026},
    month = sep,
    doi = {10.3982/ECTA23874},
    url = {https://onlinelibrary.wiley.com/doi/abs/10.3982/ECTA23874},
    eprint = {https://onlinelibrary.wiley.com/doi/pdf/10.3982/ECTA23874},
    keywords = {Inflation, labor market, wage rigidity, conflict costs, worker welfare},
    abstract = {How costly is inflation to workers? Answers to this question have focused on the path of real wages during inflationary periods. We argue that workers must take costly actions (``conflict'') to have nominal wages catch up with inflation, meaning there are welfare costs even if real wages do not fall as inflation rises. We study a menu-cost style model, where workers choose whether to engage in conflict with employers to secure a wage increase. We show that, following a rise in inflation, wage catch-up resulting from more frequent conflict does not raise welfare. Instead, the impact of inflation on worker welfare is determined by what we call ``wage erosion''---how inflation would lower real wages if workers' conflict decisions did not respond to inflation. As a result, using observed wage growth to measure worker welfare understates the costs of inflation. We conduct a survey showing that workers are willing to sacrifice around 1.75\% of their wages to avoid conflict. Calibrating the model to survey data, we find that incorporating conflict significantly raises the costs of inflation for workers.}
}