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How Much Do Labor Costs Affect Prices in Recessions and in Expansions?

Author

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  • Marios Karabarbounis

Abstract

Inflation had been quite low in the decade following the Great Recession but surged following the COVID-19 recession. Can labor costs explain this change in the dynamics of inflation? According to recent research, the relatively stable inflation in the last decade indicates a weaker pass-through of labor costs to wages, especially in the goods sector of the economy. The current inflationary episode, however, suggests that the wage-price pass-through may have regained its strength.

Suggested Citation

  • Marios Karabarbounis, 2023. "How Much Do Labor Costs Affect Prices in Recessions and in Expansions?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 23(14), May.
    • Handle: RePEc:fip:fedreb:96103
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