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The Puzzle of a Missing Wage‐Price Spiral: Experimental Evidence on Inflation Expectations and Labor Supply

Author

Listed:
  • Chaewon Baek

    (Department of Economics, Sungkyunkwan University, Tufts University)

  • Vitaliia Yaremko

    (Department of Economics, Sungkyunkwan University, Tufts University)

Abstract

We study how workers form inflation expectations and incorporate them into labor supply decisions using experimental evidence from the U.S. online labor market. Exploiting exogenous variation from randomized information provision, we find that higher price inflation expectations do not raise reservation wages. Instead, workers lower reservation wages for multiperiod contracts, even after controlling for wage growth and unemployment expectations. These patterns are consistent with a labor search model where higher inflation expectations reduce the perceived value of future job offers, increase income risk, and induce a precautionary reduction in reservation wages. Overall, the findings suggest limited risk of wage‐price spirals.

Suggested Citation

  • Chaewon Baek & Vitaliia Yaremko, 2026. "The Puzzle of a Missing Wage‐Price Spiral: Experimental Evidence on Inflation Expectations and Labor Supply," Trinity Economics Papers tep0926, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:tep0926
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    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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