The high rates of return, in turn, seem to be inducing competitive pressures that limit the ability of firms to raise prices relative to their underlying cost structures because they fear that competitors anxious to capture a greater share of the market will not follow suit.
Thus, the evidence seems more consistent with the view that wage restraint is damping price increases than the other way around. If the job insecurity paradigm that I have outlined is the key, then we must recognize that, as I indicated in last February’s Humphrey-Hawkins testimony, “suppressed wage cost growth as a consequence of job insecurity can be carried only so far.