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Record job switching has contributed to higher inflation

A paper by the Chicago Federal Reserve shows that job switching boosted inflation an extra percentage point as people were able to garner higher pay.
Posted at 12:43 PM, Jan 27, 2023

Since the pandemic, Americans have been switching jobs faster than ever before.

Data from the Bureau of Labor Statistics shows as many as 4 million Americans quit their jobs each month in 2021 to look for new opportunities.

For some, job switching led to more money. For others, it led to a better quality of life. However, new data shows it has all influenced the prices of what we buy in stores.

A paper by the Chicago Federal Reserve shows that job switching boosted inflation an extra percentage point as people were able to garner higher pay, but as more people took on these opportunities, productivity slowed. Companies had to spend more money and time filling positions and getting new employees up to speed. To compensate for less production, prices were pushed even higher, a side effect Gladys Santiago and her wife Emily Stork felt when buying equipment for their new fitness studio.

“It was scary,” said Santiago. “It’s a big investment and it ended up being a bigger investment than we anticipated, and then you’re worrying about whether or not people can afford you because there’s so much uncertainty.”

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In November 2020, Santiago quit her job in TV sales and Stork quit her job as a corporate lawyer so they could start Worth the Fight Boxing, a passion project of theirs.

“You know, the pandemic happened and it kind of gave us a new perspective,” said Stork. “Maybe we should take this risk because you never know when things are going to change.”

Typically, healthy turnover can be good as it leads people to jobs most suitable for them, but the Great Resignation brought its own problems as companies would invest in new employees, only to find them moving on in a few weeks.

The Chicago Fed says as much as 20% of the price growth seen over the last year was due to job switching, even with all of its positive impacts.

“You know, I think it has improved our relationship a lot,” said Santiago. “We don’t really fight too much, we better communicate.”

The newest inflation report shows prices are getting better. Prices in December were up 6.5% from a year prior, down from a high of 9% in July.

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