Paper

Abstract: We study how workers form their price and wage inflation expectations and incorporate them into their labor supply decisions based on experimental evidence from the U.S. online labor market.  Exploiting exogenous variation in expectations generated by randomized information treatments, we find that workers do not increase their reservation wages in response to higher price inflation expectations. Instead, workers reduce their reservation wages for multi-period employment contracts when price inflation expectations rise, after controlling for wage growth and unemployment expectations.  This behavior indicates that individuals perceive higher inflation as a negative signal about the economy and lower their reservation wages accordingly, effectively increasing labor supply as a form of precautionary behavior. These findings suggest that the risk of wage-price spirals in the U.S. was limited in 2022, despite high price inflation rates.

for information patrizia.pellizzari@unibocconi.it