The Job Ladder: Inflation vs. Reallocation

• Department of Economics

In this seminar, Giuseppe Moscarini (Yale University) will present the paper "The Job Ladder: Inflation vs. Reallocation."

We introduce on-the-job search frictions in an otherwise standard monetary DSGE New-Keynesian model. Heterogeneity in productivity across jobs generates a job ladder. Firms Bertrand-compete for employed workers using the Sequential Auctions protocol of Postel-Vinay and Robin (2002). Outside job offers to employed workers, when accepted, reallocate employment up the productivity ladder; when declined, because matched by the current employer, they raise production costs and, due to nominal price rigidities, compress mark-ups, building inflationary pressure. When employment is concentrated at the bottom of the job ladder, typically after recessions, the reallocation effect prevails, aggregate supply expands, moderating marginal costs and inflation. As workers climb the job ladder, reducing slack in the employment pool, the inflation effect takes over. The model generates endogenous cyclical movements in the Neo Classical labor wedge and in the New Keynesian wage mark-up. The economy takes time to absorb cyclical misallocation and features propagation in the response of job creation, unemployment and wage inflation to aggregate shocks. The ratio between job finding probabilities from other jobs and from unemployment, a measure of the ``Acceptance rate'' of job offers to employed workers, predicts negatively future inflation, independently of the unemployment rate, both in the model and in reduced-form empirical evidence that we provide, a new wage Phillips curve with very significant slope.

Co-author: Fabien Postel-Vinay (University College London)

Participation on site will be allowed on a first-come, first-served basis. The event will also be live-streamed via zoom. Participants will receive the zoom link once registered.