Job Polarization and the Flattening of the Price Phillips Curve

Daniele Siena and Riccardo Zago

Working papers from Banque de France

Abstract: This paper shows that the change in the occupational composition of the labor market in favour of non-routine jobs -i.e. job polarization- flattens the price Phillips Curve (PC). Using data from the European Monetary Union and exploiting the fact that job polarization accelerates during recessions, we obtain two results. First, countries experiencing a bigger shift in the occupational structure during a downturn exhibit a flatter PC afterward. Second, the occupational shifts experienced during the Great Recession and the Sovereign Debt Crisis explain up to a forth of the flattening of the curve in the 2002-2018 period. We reconcile this evidence through a New Keynesian model with unemployment and search and matching frictions. Heterogeneity in the fluidity across segments of the labor market -i.e. differences in the separation and hiring rate across jobs- is the source of PC flattening.

Keywords: Phillips Curve; Job Polarization; Occupational Composition; Monetary Policy; Labor Market Fluidity. (search for similar items in EconPapers)
JEL-codes: E31 E32 J21 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2021
New Economics Papers: this item is included in nep-dge, nep-eec, nep-isf, nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:819

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