Template-Type: ReDIF-Paper 1.0
Author-Name: Enisse Kharroubi
Author-X-Name-First: Enisse
Author-X-Name-Last: Kharroubi
Author-Name: Marius Koechlin
Author-X-Name-First: Marius
Author-X-Name-Last: Koechlin
Title: Labour market flows, unemployment and the Phillips curve
Abstract: We present empirical evidence from the United States demonstrating that labour market flows provide valuable insights into subsequent wage and price inflation. Specifically, we introduce a novel measure of the unemployment gap, defined as the difference between the unemployment rate implied by current labour market transitions -referred to as "flow-based unemployment"- and the observed, or stock-based unemployment, rate. Our findings reveal that inflationary pressures tend to subside when the unemployment gap becomes positive, i.e., when flow-based unemployment exceeds stock-based unemployment. To further investigate this relationship, we develop a search-and-matching model incorporating nominal wage rigidities and persistent (non-i.i.d.) shocks. In this framework, while firms face wage rigidities, they retain the ability to negotiate wages with new hires, making firms' bargaining power endogenous and dependent on both stock- and flow-based unemployment. Consistent with our empirical results, the model demonstrates that a larger unemployment gap-whether driven by higher flow-based unemployment or lower stock-based unemployment-typically leads to lower wages, provided that shocks to transition probabilities exhibit sufficient persistence.
Creation-Date: 2026-03
File-URL: https://www.bis.org/publ/work1341.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1341.htm
File-Format: text/html
Number: 1341
Keywords: labour market flows, unemployment gap, search-and-matching, nominal rigidities, inflation, Phillips curve
Classification-JEL: E23, E24, E31, E32, E52, J64
Handle: RePEc:bis:biswps:1341