Job Polarization, Labor Market Fluidity and the Flattening of the Phillips Curve
This paper shows that job polarization -i.e. the disappearance of routine jobs- is changing the characteristics of the labor market. This has structural implications for the relationship between inflation and unemployment, the price Phillips Curve (PC). Using data from the European Monetary Union (EMU) and exploiting the fact that job polarization accelerates during recessions, we obtain two empirical results. First, countries experiencing a bigger shift in the occupational structure during a downturn exhibit a flatter PC afterward. Second, the occupational shifts experienced during the Great Recession and the Sovereign Debt Crisis explain up to a fourth of the flattening of the curve in the 2002-2018 period. Then, we reconcile this evidence through a New Keynesian model with unemployment and search and matching frictions. We show that increasing labor market fluidity -i.e. higher separation and hiring rate- decreases the slope of the PC. Using micro-data, we _nd that in the EMU non-routine jobs are more fluid. We conclude that job polarization flattened the PC.