Bad Jobs and Low Inflation

Renato Faccini and Leonardo Melosi

No WP-2020-09, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: The low rate of inflation observed in the U.S. over the entire past decade is hard to reconcile with traditional measures of labor market slack. We show that an alternative notion of slack that encompasses workers' propensity to search on the job explains this missing inflation. We derive this novel concept of slack from a model in which a drop in the on-the-job search rate lowers the intensity of interfirm wage competition to retain or hire workers. The on-the-job search rate can be measured directly from aggregate labor-market flows and is countercyclical. Its recent drop is corroborated by micro data.

Keywords: Missing inflation; on-the-job search; employment-to-employment rate; labor market slack; Phillips curve; cyclical misallocation; micro data; heterogeneous agents (search for similar items in EconPapers)
JEL-codes: C32 E31 E37 (search for similar items in EconPapers)
Pages: 59
Date: 2020-03-05, Revised 2021-02-09
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Bad Jobs and Low Inflation (2020)
Working Paper: Bad Jobs and Low Inflation (2019)
Working Paper: Bad Jobs and Low Inflation (2019)
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DOI: 10.21033/wp-2020-09

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