Inflation Expectations, Wage Bargaining, and Labor Supply Budget

Michael Weber, Associate Professor of Finance

This project aims to understand how individuals causally adjust their wage bargaining to their inflation perceptions and expectations, how these expectations shape individuals’ labor supply decisions
both at the extensive and intensive margin, and whether increases in monetary policy rate have the power to directly tame possible wage-price spirals. To do so, we plan to run information-provision
experiments on the Nielsen homescan panel to generate exogenous variation in inflation expectations to study how individuals update their wage bargaining expectations, their labor supply, and how
they react to the provision of information about policy rate increases of different sizes. The study will guide the appropriate monetary policy response to the hike in inflation but also allows us to better understand how labor market tightness might change to changes in inflation expectations and the induced adjustment in labor supply.