Theory Meets Textual Analysis: Measuring Firm-Level Labor Cost Pressures and Inflation Pass-Through

Aakash Kalyani and Serdar Ozkan

No 2025-021, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We develop a novel measure of firm-level marginal labor cost and investigate its inflation pass-through. We apply textual analysis to earnings calls to identify labor discussions. Leveraging cost-minimization theory that firms equate marginal revenue products across variable inputs, we regress intermediate input revenue shares on labor discussion intensity to recover marginal labor cost shocks. This theory-based approach aggregates multidimensional qualitative information into a single measure. Our aggregate index outperforms conventional slack variables in forecasting inflation. Industry level pass-through to PPI is heterogeneous: highest for services, near-zero for manufacturing, where firm-level data reveal automation mitigates labor cost pressures.

Keywords: labor cost pressures; inflation; textual data; machine learning (search for similar items in EconPapers)
JEL-codes: E24 J24 J31 J64 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2025-07-06, Revised 2026-01-30
New Economics Papers: this item is included in nep-big, nep-lma and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:101743

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DOI: 10.20955/wp.2025.021

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