Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272818 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. WP 2023-03
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
The low rate of inflation observed in the U.S. over the past decade is hard to reconcile with traditional measures of labor market slack. We develop a theory-based indicator of interfirm wage competition that can explain the missing inflation. Key to this result is a drop in the rate of on-the-job search, which lowers the intensity of interfirm wage competition to retain or hire workers. We estimate the on-the-job search rate from aggregate labor-market flows and show that its recent drop is corroborated by survey data. During "the great resignation", the indicator of interfirm wage competition rose, raising inflation by around 1 percentage point during most of 2021.
Subjects: 
Missing inflation
labor market slack
Phillips curve
employment-to-employment rate
micro data
JEL: 
E31
E37
C32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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