Working Paper

Job-to-Job Mobility and Inflation

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;

JEL Classification: E31; E37; C32;

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Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2023-01-19

Number: WP 2023-03