On-the-Job Search and Inflation under the Microscope

Saman Darougheh, Renato Faccini, Leonardo Melosi and Alessandro T. Villa
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Saman Darougheh: Danmarks Nationalbank
Alessandro T. Villa: FRB Chicago

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We develop a Heterogeneous Agents New Keynesian (HANK) model with a job ladder and endogenous on-the-job search (OJS) that challenges the traditional view of a negative relationship between unemployment and inflation. On the one hand, OJS is inflationary, sparking wage competition among firms to attract or retain workers. On the other hand, OJS strengthens workers’ bargaining power, reducing firms’ incentives to post vacancies and thereby increasing unemployment. The model explains the effects of the 2012 Danish tax reform, which influenced OJS differentially across the income distribution, on the employment transitions and wage growth observed in the microdata.

Keywords: Job ladder models; inflation; Danish microdata (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1536

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