When people expect prices to go up, they don’t demand a raise—they actually get scared and agree to work for less money.
April 10, 2026
Original Paper
The Puzzle of a Missing Wage-Price Spiral: Experimental Evidence on Inflation Expectations and Labor Supply
SSRN · 6446379
The Takeaway
Economists have long feared a wage-price spiral where inflation leads to higher wage demands. In reality, workers are so scared of losing their income during unstable times that they often accept lower pay in exchange for the security of a long-term contract.
From the abstract
We study how workers form inflation expectations and incorporate them into labor supply decisions using experimental evidence from the U.S. online labor market. Exploiting exogenous variation from randomized information provision, we find that higher price inflation expectations do not raise reservation wages. Instead, workers lower reservation wages for multiperiod contracts, even after controlling for wage growth and unemployment expectations. These patterns are consistent with a labor search