Expected inflation and wage changes in Canada, 1967--81.

This paper presents a Canadian inflationary expectations measure that is based on quite realistic assumptions about the amount of information available to those forming expectations and uses this estimate to study the determinants of wage changes in the 1967-81 period. The main conclusions are: (1) wage settlements are quite responsive to variations in labour market conditions, a 1 per cent change in the unemployment rate leading to approximately a 1 per cent change in the rate of change of wages; (2) the 1971 revisions to the Unemployment Insurance Act raised the 'natural' unemployment rate by approximately 1.4 points; and (3) the Anti-Inflation Program of 1975-8 had a significant effect on wage settlements, the estimated average reduction being approximately 2 per cent. The study also presents the first statistical tests of two competing hypotheses regarding the manner in which 'catch-up' forces affect wage settlements. [ABSTRACT FROM AUTHOR]