Download This PaperBad Jobs and Low Inflation
59 Pages Posted: 4 May 2020 Last revised: 18 Feb 2021
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Bad Jobs and Low Inflation
Bad Jobs and Low Inflation
Date Written: February 9, 2021
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: Missing inflation, job ladder, cyclical misallocation, labor market slack, Phillips curve
JEL Classification: E31, E24, C78
Suggested Citation: Suggested Citation