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Bad Jobs and Low Inflation

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Abstract

The low rate of inflation observed in the U.S. over the entire past decade is hard to reconcile with traditional measures of labor market slack. We show that an alternative notion of slack that encompasses workers' propensity to search on the job explains this missing inflation. We derive this novel concept of slack from a model in which a drop in the on-the-job search rate lowers the intensity of interfirm wage competition to retain or hire workers. The on-the-job search rate can be measured directly from aggregate labor-market flows and is countercyclical. Its recent drop is corroborated by micro data.

Suggested Citation

  • Renato Faccini & Leonardo Melosi, 2020. "Bad Jobs and Low Inflation," Working Paper Series WP-2020-09, Federal Reserve Bank of Chicago, revised 09 Feb 2021.
    • Handle: RePEc:fip:fedhwp:92757
    DOI: 10.21033/wp-2020-09
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Bad Jobs and Low Inflation
      by Christian Zimmermann in NEP-DGE blog on 2019-10-19 20:21:04

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    Cited by:

    1. Marco Del Negro & Michele Lenza & Giorgio E. Primiceri & Andrea Tambalotti, 2020. "What's Up with the Phillips Curve?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(1 (Spring), pages 301-373.
    2. Francesco Bianchi & Leonardo Melosi & Anna Rogantini Picco, 2022. "Who is Afraid of Eurobonds?," Working Paper Series WP 2022-43, Federal Reserve Bank of Chicago.
    3. Drago Bergholt & Francesco Furlanetto & Etienne Vaccaro-Grange, 2023. "Did monetary policy kill the Phillips Curve? Some simple arithmetics," Working Paper 2023/2, Norges Bank.
    4. Siena, Daniele & Zago, Riccardo, 2022. "Employment protection legislation matters for the Phillips Curve," Economics Letters, Elsevier, vol. 220(C).
    5. Felipe Alves, 2022. "Job Ladder and Business Cycles," Staff Working Papers 22-14, Bank of Canada.
    6. Cynthia L. Doniger, 2021. "What Can We Learn from Asynchronous Wage Changes?," Finance and Economics Discussion Series 2021-055r1, Board of Governors of the Federal Reserve System (U.S.), revised 31 Mar 2022.
    7. Gregor Boehl & Philipp Lieberknecht, 2021. "The Hockey Stick Phillips Curve and the Zero Lower Bound," CRC TR 224 Discussion Paper Series crctr224_2021_266, University of Bonn and University of Mannheim, Germany.
    8. Chris Martin & Magdalyn Okolo, 2022. "Modelling the Differing Impacts of Covid‐19 in the UK Labour Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(5), pages 994-1017, October.
    9. Richard Ashley & Randal J. Verbrugge, 2019. "The Intermittent Phillips Curve: Finding a Stable (But Persistence-Dependent) Phillips Curve Model Specification," Working Papers 19-09R2, Federal Reserve Bank of Cleveland, revised 14 Feb 2023.
    10. R. Jason Faberman & Andreas I. Mueller & Ayşegül Şahin* & Giorgio Topa, 2020. "The Shadow Margins of Labor Market Slack," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(S2), pages 355-391, December.

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    More about this item

    Keywords

    Missing inflation; on-the-job search; employment-to-employment rate; labor market slack; Phillips curve; cyclical misallocation; micro data; heterogeneous agents;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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