Inflation Perceptions and Expectations and Firms’ Wage Determination: Evidence from Chinese listed manufacturing companies

Abstract

This article investigates the extent to which inflation perceptions and expectations affect firms’ wage determination. We adopt dummy variables data to quantify the firm inflation perceptions of China's listed manufacturing companies from corporate annual reports. The results reveal that inflation perceptions have a growth effect on firms’ wage determination, not vice versa. The wages of firms whose inflation perceptions have risen are approximately 6% higher than are those inflation perceptions have remained approximately the same. The firms whose inflation perceptions have fallen show no causal relationship between inflation perceptions and wage. Short-term inflation expectations will reduce wages. For every 1% increase in inflation expectations, the wages paid by firms will fall by approximately 3.5 percentage points. Corporate profits have little effect on wage change and are negatively related.