A0574
Title: Inflation and the gender wage gap: The role of belief frictions
Authors: Nicolo Maffei Faccioli - Norges Bank (Norway) [presenting]
Abstract: How does the gender wage gap (GWG) respond to inflation? It is found that the GWG widens following both supply- and demand-driven inflationary shocks after controlling for individual characteristics and industry and occupation sorting. This widening is driven by gender differences in labor market perceptions: during inflationary periods, regardless of the source, women interpret inflation as a sign of strongly deteriorating labor market conditions (i.e., as supply shocks) and men as a sign of mildly improving labor market conditions (i.e., as demand shocks). These differing perceptions reduce women's reservation wages and lead to lower nominal wage growth relative to men. To capture this mechanism, a New Keynesian model is developed with two types of workers, men and women, and search and match frictions, where neither worker observes the true shocks. Instead, each forms potentially biased beliefs about the shock. The model successfully replicates the cyclicality of the GWG observed in the data.
