Job-to-Job Mobility and Inflation

Renato Faccini and Leonardo Melosi

No WP 2023-03, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: The low rate of inflation observed in the U.S. over the past decade is hard to reconcile with traditional measures of labor market slack. We develop a theory-based indicator of interfirm wage competition that can explain the missing inflation. Key to this result is a drop in the rate of on-the-job search, which lowers the intensity of interfirm wage competition to retain or hire workers. We estimate the on-the-job search rate from aggregate labor-market flows and show that its recent drop is corroborated by survey data. During "the great resignation", the indicator of interfirm wage competition rose, raising inflation by around 1 percentage point during most of 2021.

Keywords: Missing inflation; labor market slack; Phillips curve; employment-to-employment rate; micro data (search for similar items in EconPapers)
JEL-codes: C32 E31 E37 (search for similar items in EconPapers)
Pages: 68
Date: 2023-01-19
New Economics Papers: this item is included in nep-lab and nep-mon
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Citations: View citations in EconPapers (2)

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Working Paper: Job-to-Job Mobility and Inflation (2023)
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