Bad Jobs and Low Inflation

Renato Faccini and Leonardo Melosi

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

Abstract: We study a model in which firms compete to retain and attract workers searching on the job. A drop in the rate of on-the-job search makes such wage competition less likely, reducing expected labor costs and lowering inflation. This model explains why inflation has remained subdued over the last decade, which is a conundrum for general equilibrium models and Phillips curves. Key to this success is the observed slowdown in the recovery of the employment-to-employment transition rate in the last five years, which is interpreted by the model as a decline in the share of employed workers searching for a job. This fall in the on-the-job search rate is corroborated by the micro data.

Keywords: misallocation; cyclical; labor market slack; Inflation; job ladder; Phillips curve (search for similar items in EconPapers)
JEL-codes: C78 E24 E31 (search for similar items in EconPapers)
Pages: 54
Date: 2020-03-02
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Bad Jobs and Low Inflation (2021)
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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