Working Paper Revision

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

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.

JEL Classification: E24; J24; J31; J64;

https://doi.org/10.20955/wp.2025.021

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2026-01-30

Number: 2025-021

Related Works

• Working Paper Revision (2026-01-30) : You are here.
• Working Paper Original (2025-07-06) : Theory Meets Textual Analysis: Measuring Firm-Level Labor Cost Pressures and Inflation Pass-Through