From NY to LA: A Look at the Wage Phillips Curve Using Cross-Geographical Data

Sylvain Leduc and Daniel Wilson

No 1290, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: This paper estimates the cross-geographical wage Phillips Curve (PC) and relates this object to the aggregate wage PC through the lens of a New Keynesian model of regions within a monetary union. We argue that a well-identfied cross-geographical PC, combined with a theoretical mapping from this object to the aggregate PC, provides an appealing alternative to estimating the latter from time-series variation. We employ this approach to study the recent debates over whether the wage PC slope has flattened in recent years and whether the wage PC is nonlinear. We find substantial evidence of a flattening of the wage PC during the recovery from the Great Recession, using both state and city panel data. We find no evidence of any economically meaningful nonlinearity. As our theoretical model shows, a flattening cross-geographical wage PC need not imply a flattening aggregate PC if intra-national labor mobility has risen and/or if monetary policy has become less passive. However, evidence points to the opposite, suggesting that the aggregate PC slope flattened at least as much.

Date: 2018
New Economics Papers: this item is included in nep-mac
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