Bad jobs and low inflation

Author / Creator

Faccini, Renato, author

Available as

Online

Summary

In a dynamic general equilibrium model with a job ladder, inflation rises when most workers are employed in high-productivity jobs because in this case, poaching leads to wage increases that are no...

In a dynamic general equilibrium model with a job ladder, inflation rises when most workers are employed in high-productivity jobs because in this case, poaching leads to wage increases that are not backed by changes in productivity. The model predicts that the post-Great Recession drop in the job-to-job flow rate has significantly slowed the pace at which the U.S. labor market turns low-productivity jobs into high-productivity ones. As a result, inflation has fallen below trend for an entire decade, despite the marked decline in the unemployment rate. The impaired process of reallocation over the job ladder accounts for a one-percentage-point reduction in U.S. labor productivity relative to trend, contributing to explain the stagnant productivity of the current economic recovery.

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