## Inflation and Labor Markets: A Bottom-Up View

_IMF Working Papers, October 11, 2024_

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**Canonical URL:** [Inflation and Labor Markets: A Bottom-Up View](https://www.imf.org/en/publications/wp/issues/2024/10/11/inflation-and-labor-markets-a-bottom-up-view-556258)

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## Bibliographic details
- Authors: Sophia Chen, Deniz O Igan, Do Lee, Prachi Mishra
- Published: October 11, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400291807.001

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### Authors and publication
- By Sophia Chen, Deniz O Igan, Do Lee, Prachi Mishra
- October 11, 2024
- IMF Working Papers, Working Paper No. 2024/220, Issue: 220, Volume: 2024
- Pages: 37
- DOI: https://doi.org/10.5089/9798400291807.001
- ISBN: 9798400291807
- Stock No: WPIEA2024220
- ISSN: 1018-5941

### Research focus and scope
- Zooms into services inflation within the U.S. context where inflation surged in 2021-22 and has since declined.
- Emphasizes that goods inflation drove much of the surge and subsequent decline, while services inflation remains elevated.
- Uses proprietary microdata on wages to examine the relationship between service sector wage growth and services inflation at the Metropolitan Statistical Area (MSA) level.

### Methodology
- Empirical approach: local projection instrumental variable model.
- Identification strategy: exploits variation in labor market tightness across MSAs as an instrument to estimate wage-price pass-through.
- Unit of analysis: Metropolitan Statistical Area (MSA) level wage and price data.
- Data input: proprietary microdata on wages (service sector wage growth).

### Key findings
- There is a positive and significant relationship between wages and price growth in the service sector.
- The wage-price pass-through exhibits a lagged effect.
- The findings imply that effects of tight labor markets are persistent and may influence the pace of progression toward the inflation target.

### Subject tags and keywords (as provided)
- Subjects: Economic sectors, Housing, Inflation, Labor, Labor markets, National accounts, Prices, Services sector, Wages
- Keywords: Global, goods inflation, Housing, IMF working paper No. 2024/220, Inflation, Labor Market Conditions, Labor markets, services inflation, Services sector, wage growth, wage-price pass-through, Wages

*Source: IMF Working Papers — "Inflation and Labor Markets: A Bottom-Up View", IMF Working Papers 2024, 220 (2024).*

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_Source: https://www.imf.org/en/publications/wp/issues/2024/10/11/inflation-and-labor-markets-a-bottom-up-view-556258_