Job Search, Wages, and Inflation

How do inflation expectations affect the job search behavior of workers when wages are set in nominal terms? A canonical job search model incorporating nominal wage rigidities implies that on-the-job search should increase and reservation wages should decrease with expected inflation. Higher inflation expectations therefore lead to more frequent job-to-job transitions. We show in a novel survey that workers search more under higher values of hypothetical inflation. In the Survey of Consumer Expectations, workers with higher inflation expectations have lower reservation wages and are more likely to search and to change jobs. The relationship between expected inflation and employer-to-employer transitions also appears in aggregate time series data.