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Bad Jobs and Low Inflation

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  • Faccini, Renato
  • Melosi, Leonardo

Abstract

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.

Suggested Citation

  • Faccini, Renato & Melosi, Leonardo, 2019. "Bad Jobs and Low Inflation," CEPR Discussion Papers 13628, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13628
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    References listed on IDEAS

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    1. Luca Sala & Ulf Söderström & Antonella Trigari, 2013. "Structural and Cyclical Forces in the Labor Market during the Great Recession: Cross-Country Evidence," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 345-404.
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    More about this item

    Keywords

    Cyclical Misallocation; Job Ladder; labor productivity; Phillips curve;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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