The Puzzle of a Missing Wage‐Price Spiral: Experimental Evidence on Inflation Expectations and Labor Supply

Chaewon Baek () and Vitaliia Yaremko ()
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Chaewon Baek: Department of Economics, Sungkyunkwan University, Tufts University
Vitaliia Yaremko: Department of Economics, Sungkyunkwan University, Tufts University

No tep0926, Economic Papers from Trinity College Dublin, Economics Department

Abstract: We study how workers form inflation expectations and incorporate them into labor supply decisions using experimental evidence from the U.S. online labor market. Exploiting exogenous variation from randomized information provision, we find that higher price inflation expectations do not raise reservation wages. Instead, workers lower reservation wages for multiperiod contracts, even after controlling for wage growth and unemployment expectations. These patterns are consistent with a labor search model where higher inflation expectations reduce the perceived value of future job offers, increase income risk, and induce a precautionary reduction in reservation wages. Overall, the findings suggest limited risk of wage‐price spirals.

Keywords: inflation expectations; cross-learning; labor supply; wage-price spiral; randomized control trial (search for similar items in EconPapers)
JEL-codes: C83 D84 E31 J22 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2026-04
New Economics Papers: this item is included in nep-exp, nep-lma and nep-mon
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