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Theory Meets Textual Analysis: Measuring Firm-Level Labor Cost Pressures and Inflation Pass-Through

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Abstract

We develop a novel measure of firm-level marginal labor cost and investigate its inflation pass-through. We apply textual analysis to earnings calls to identify labor discussions. Leveraging cost-minimization theory that firms equate marginal revenue products across variable inputs, we regress intermediate input revenue shares on labor discussion intensity to recover marginal labor cost shocks. This theory-based approach aggregates multidimensional qualitative information into a single measure. Our aggregate index outperforms conventional slack variables in forecasting inflation. Industry level pass-through to PPI is heterogeneous: highest for services, near-zero for manufacturing, where firm-level data reveal automation mitigates labor cost pressures.

Suggested Citation

  • Aakash Kalyani & Serdar Ozkan, 2025. "Theory Meets Textual Analysis: Measuring Firm-Level Labor Cost Pressures and Inflation Pass-Through," Working Papers 2025-021, Federal Reserve Bank of St. Louis, revised 30 Jan 2026.
    • Handle: RePEc:fip:fedlwp:101743
    DOI: 10.20955/wp.2025.021
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    References listed on IDEAS

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    1. Amit Gandhi & Salvador Navarro & David A. Rivers, 2020. "On the Identification of Gross Output Production Functions," Journal of Political Economy, University of Chicago Press, vol. 128(8), pages 2973-3016.
    2. Wolfgang Keller & Stephen R. Yeaple, 2009. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 821-831, November.
    3. Acemoglu, Daron & Autor, David, 2011. "Skills, Tasks and Technologies: Implications for Employment and Earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 12, pages 1043-1171, Elsevier.
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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