Inflation across the states and inequality

The Relationship between the Inflation Rate and Inequality Across U.S. States: A Semiparametric Approach

This paper uses a cross-state panel for the United States over the 1976 to 2007 period to assess the relationship between income inequality and the inflation rate. Employing a semiparametric instrument variable (IV) estimator, we find that the relationship depends on the level of the inflation rate. A positive relationship occurs only if the states exceed a threshold level of inflation rate. Below this value, inflation rate lowers income inequality. The results suggest that a nonlinear relationship exists between income inequality and the inflation rate.

Wages are stickier than prices?  Wages are stickier for poor people? 

Baumol's cost disease (or the Baumol effect) is the rise of salaries in jobs that have experienced no or low increase of labor productivity, in response to rising salaries in other jobs that have experienced higher labor productivity growth.

 

 It takes loner for the lower paid service sector to catch up with the higher paid sectors.

It is not just endogenous productivity, but heterogeneous effect of the government sector that causes productivity shifts. We would expect the broad middle states, the most liquid to have the lowest inflation rate, the most neutral price settings.