Discussion paper
DP19795 On-the-Job Search and Inflation under the Microscope
We show that workers’ on-the-job search (OJS) decisions respond to economic conditions, significantly influencing macroeconomic fluctuations and the relationship between nominal and real variables. Specifically, we exploit the 2013 Danish tax reform, which heterogeneously altered workers' OJS incentives, to examine its effects on employment-to-employment transitions and wage growth across income groups. A heterogeneous-agent model with endogenous OJS replicates these effects and predicts that plausibly calibrated shocks to OJS costs generate sizable responses of real activity and inflation. Moreover, declining OJS costs—driven, for instance, by the spread of ICT and AI-based search tools—contribute to flattening the Phillips curve.
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