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Overview

Inflation: Drivers and Dynamics 2025 Conference – Speakers

The speaker evaluates a paper on wage-setting and on-the-job search, focusing on whether cost-of-living shocks can trigger wage-price spirals. They accept the importance of on-the-job search for wage inflation but argue the model’s wage-posting assumption removes key bargaining channels. They contrast three mechanisms for wage-price spirals and present evidence from a job-ladder model and Danish tax reform to assess which mechanisms align with observed data.

Evidence linking quits and on-the-job search to wage inflation

• Quits correlate with wage inflation better than unemployment.
• Hiring flows: 50% of people hired have a job; 25% are recalls (maternity/paternity returns); 25% come from unemployment.
• Implication: Understanding wage inflation requires understanding how wages are bargained by employed workers; the speaker “buys that.”

Model assumptions and wage-setting dynamics

• Frictional labor market with random search and a representative firm that posts wages, implying one wage in equilibrium.
• No wage motive for on-the-job search; workers switch jobs due to exogenous preference shocks. Turnover is separate from wages.
• Firm’s trade-off: higher posted wage vs. lower quit probability. If quit probability changes, the equilibrium wage changes.

Cost-of-living shock in the model

• For wages to rise after a cost-of-living shock, quits must increase.
• Labor supply channel: Workers could search more, but on-the-job search is exogenous in the model, so it does not change.
• Labor demand channel: More vacancies could raise quits, but if the central bank looks through a permanent rise in the price level, aggregate demand and labor demand are unchanged; quits do not change; wages do not change.
• Therefore, on impact only the real wage adjusts; the cost-of-living shock has no propagation in this model.

Three wage–price spiral stories discussed

1. Bargaining story: Workers seek compensation for higher living costs from their own employer (Nash bargaining/surplus sharing). The model rules this out by construction.
2. Outside offers story: Workers search, obtain higher external offers, and return for counteroffers (sequential auction bargaining). Also ruled out by construction.
3. Preemptive wage rises by employers: Firms raise wages to prevent quits. The paper speaks to this, but it presupposes workers may search for higher wages—an element the discussant suggests is missing.

Job-ladder model and Danish tax reform evidence

• Ongoing work: A job ladder model with endogenous on-the-job search and sequential auction bargaining.
• Mechanism: Unemployed accept low initial wages due to absent bargaining power; later, employed workers search, receive outside offers, and may obtain counteroffers from incumbents.
• Empirical test: Danish tax reform using micro data.
• 2012 system: People with less than 4 600 euros faced a 42 percent marginal tax rate; above that, 55 percent (13 percentage point increase).
• 2013 change: The threshold was moved eight percentage points to the right.
• Implication: At the 2012 threshold, workers experienced a 13 percentage point fall in marginal tax; those far left/right were unaffected for any feasible on-the-job wage gain, yielding an inverse V-shaped differential response across the distribution.
• Findings:
  • On-the-job search: Inverse V-shaped pattern in both model (red) and data (blue).
  • Wage growth for stayers: Same inverse V-shaped pattern.
  • Leavers: No differential pattern across years, though average wages rise; consistent with the model.

Implications for spiral mechanisms and model design

• Data reject the Nash bargaining story (would imply a V shape, not inverse V).
• Data are consistent with the outside offers/counteroffer mechanism.
• Data reject preemptive wage rises in wage-posting models: a single posted wage for leavers and stayers cannot explain the observed differential behavior.
• Agreement with Jake’s conclusion: It is unlikely that wage-price spirals are initiated by employers raising wages.
• Nonetheless, even without unions, workers can exert bargaining power via outside offers and renegotiation.
• Potential model refinement: Incorporate a wage distribution that makes search meaningful; directed search could give the model a fair chance to test the preemptive mechanism.

Next steps / actions

• Consider extending the model with directed search and a wage distribution to evaluate preemptive wage-setting under realistic on-the-job search incentives.
• Open to questions.

Overview

Presentation by Ludovica Ambrosino, PhD student at LBS and Silvana Tenreyro at the LSE on how geopolitically driven trade fragmentation affects inflation and monetary policy. Context: post-war trade openness has plateaued since the Global Financial Crisis (GFC); a fragmentation index by Jesus Fernandez-Villaverde and his co-authors shows steady increases post-GFC with spikes around the pandemic and the war in Ukraine. Fragmentation implies trade realignment toward “friend-shoring” rather than a fall in openness, raising imported goods prices and lowering real incomes for many countries.

Research questions and preview findings

• Will fragmentation lead to a high inflation environment? Answer: it depends on the timing and nature of fragmentation and on demand responses. Even with a firm nominal anchor, fragmentation can produce higher inflationary pressures temporarily.
• Monetary policy response to keep CPI (Consumer Price Index) at target and the behavior of r star (natural rate of interest): it depends on how demand reacts to permanently lower incomes. A sharp demand fall can lower R star.
• Preview: Front-loaded fragmentation can cause a stagflationary spike (higher CPI inflation with lower output). Gradual, anticipated fragmentation can produce stagnation (lower real incomes, domestic disinflationary forces, and lower natural rates). A tradables TFP (Total Factor Productivity) deterioration generates an initial CPI rise followed by a persistent decline; policy must tighten then loosen.

Model setup (small open New Keynesian economy)

• Households: two types.
  • Unconstrained: maximize utility over consumption, labor, and assets; trade domestic and foreign riskless bonds subject to a quadratic cost of changing real asset positions; receive labor income and firm profits.
  • Constrained (hand-to-mouth): no financial market access; supply labor and consume all disposable income each period.
• Firms and sectors:
  • Non-tradables: monopolistic competition and sticky prices; Cobb–Douglas production using domestic labor and imported inputs (e.g., energy); takes input prices as given.
  • Tradables: internationally competitive, prices set internationally; production uses labor.
• Price aggregation: CPI is a nested composite of tradables and non-tradables; tradables comprise home and foreign goods; non-tradables aggregate differentiated varieties. The foreign tradables price PFT is the import-price shock.
• Consumption aggregator: CES between tradables and non-tradables; tradables are CES between home and foreign. Home-bias parameter (1 − data) governs openness; a higher foreign share implies greater exposure.
• Policy: monetary authority targets CPI, responding to deviations from target.
• Calibration notes: utility deviates from log with unitary elasticity of substitution (extensions consider varying elasticities). The home economy takes rest-of-world dynamics as exogenous.

Bird’s-eye propagation and trade channels

• Both household types supply labor to domestic production; unconstrained households can borrow domestically and from abroad.
• Import price shocks affect:
  • Imported inputs in non-tradables production (e.g., energy costs).
  • Foreign tradables in the household consumption basket (alongside home tradables and non-tradables).

Shock scenarios and results (RANK: Representative Agent New Keynesian)

• Gradual, anticipated rise in foreign prices (PFT):
  • Foreign price level rises gradually and stabilizes higher. Anticipation lowers consumption; labor demand falls; labor supply increases.
  • Natural rate of interest declines with weaker demand.
  • Imported inflation spikes, but the fall in non-tradables inflation dominates; aggregate CPI disinflates over time before recovering. Stagnation: lower activity and lower inflation; policy has room to loosen to bring CPI back to target.
• Front-loaded, permanent increase in foreign prices:
  • Immediate jump in foreign prices; consumption and real wages fall; natural rate does not change materially.
  • CPI inflation spikes despite falling domestic/non-tradables inflation; the spike is short-lived.
  • Stagflation: higher CPI with lower activity; a sharper policy trade-off emerges.
• Gradual deterioration in domestic tradables TFP:
  • Consumption falls; natural rate falls.
  • CPI inflation rises initially, then declines persistently.
  • Policy needs to tighten initially and then loosen subsequently.

Introducing hand-to-mouth households (TANK: Two-Agent New Keynesian)

• Motivation: constrained households cannot smooth against anticipated import price increases, dampening anticipation effects.
• Demand spillovers: as unconstrained households cut consumption, constrained households’ labor income falls, amplifying their consumption decline.
• Outcomes: slightly larger consumption fall and stronger reallocation from non-tradables to tradables; inflation and natural rate dynamics are similar to RANK across all scenarios.
  • Gradual import price rise: still stagnation (lower inflation, activity, and natural rate).
  • Front-loaded import price jump: still stagflation (higher CPI with lower activity).
  • Tradables TFP shock: similar qualitative results to RANK.

Role of trade openness

• Greater openness raises exposure to foreign price shocks, leading to larger declines in consumption and real wages, and stronger reallocation toward home tradables.
• Gradual import price rise: more open economies experience larger falls in domestic inflation components and in the natural rate; deeper stagnation.
• Front-loaded import price jump: the policy trade-off is more difficult in more open economies (higher CPI inflation despite weaker demand).
• Domestic tradables TFP shock: openness matters less for the shock’s origin, but being open helps diversify away from the affected home tradables sector, making output effects less adverse. Consumption in more open economies can fall more due to the distribution of profits (unconstrained households take a bigger hit).

Monetary policy implications

• With a credible nominal anchor, fragmentation need not cause persistently higher inflation, though it can raise inflationary pressures temporarily.
• The natural rate (R star) declines when fragmentation or TFP shocks depress demand and real incomes.
• Policy stance by scenario: ease under gradual, anticipated fragmentation; tighten under front-loaded import price jumps; tighten-then-loosen under domestic tradables TFP deterioration.

This academic research paper by Prof. Nakamura presents, in an extended empirical manner, an argument explaining how the Fed and other policymakers have used Taylor's interest rate rule in an overly prescriptive way (as I have argued here) to curb the post-COVID rise in inflation faced by many economies.

Good looking out, Bloomberg's Odd Lots podcast.

B814 – Tutorial 1 – Learning & Development at Work

An eye-opening tutorial today on B814 outlining and observing the art of learning (while ironically engaged explicitly in the very same act of learning). Grateful to the class for providing insights on the four-stage model of Kolb (1984) and concepts relevant to HR practice and organisation development from their experiences.

I also managed to squeeze in a quick listen to the L&D podcast on Apple Podcasts. The episode where David James interviews Julianna Gill from Smallbrands is worth listening to. Julianna speaks on a topic within L&D referred to as ‘performance consulting’, which I noticed is very much the action learning component of Kolb’s 1984 model set out in a very pragmatic way.

Planning on approaching the TMAs and EMAs by collecting explanatory variables and forming an objective function to elaborate on the solution to an L&D question. I will ensure I search the literature for good examples, study relational aspects of Kolb’s model, and comment appropriately.

B811 – Tutorial 1 – Human Resource Management in Context

Internal (Pricing) Decisions vs External (Supply Chain) Factors

Introducing the term: VUCA

Something very interesting has come up in the tutorial slides from Week 0 of B811. The term VUCA has emerged and is being used broadly to describe external influences on the functioning of the organisation, which translate as volatile, uncertain, complex or ambiguous (VUCA) influences. Phonetically, it may sound like a slightly graphic cross-reference to an insult and movie title where Ben Stiller was cast, but in fact, VUCA is anything but in nature, as we will come to see it is a reasonably productive abbreviation. One that may very well dictate the analysis of (external) threats in a corporate SWOT matrix.

PESTLE and STEEPLE

In Tutorial 1, the introduction to our module, we’re given the example of a high-fashion store offering clothes for sale that use fabrics sourced from ethical suppliers. Let’s refer to this store’s business as Firm X. We’re asked to critically analyse a situation where business pressures create the need to evaluate whether disbanding the value of its ethical brands, which would be categorised as being under the STEEPLE factor – which is just PESTLE with an ethical dimension – could save Firm X enough by way of its manufacturing, and production process to yield a greater level of profit.

Where do we start with this? My approach is basically to look at two aspects of the scenario and by extension, two further aspects which may inform our thinking on strategic decision making.

• Look at: Ethical constraints and the possible depreciation of brand value (Internal)
• Look at: Strategic matters concerning business decision-making (Internal)
• Observe: Market size for ethical brands in fashion (External)
• Observe: Price elasticity in ethical consumption (External)

What dynamics are at play here? Well, aside from the obvious theories that may apply (that of Ronald Coarse's theory of the firm and Milton Friedman's imperative on Firm X as a profit-seeking entity) if we focus solely on the latter two aspects of our second approach, we find various factors may come to fruition, namely, a hypothetical dichotomy arising from the timely distinction between import restrictions (relevant for US based emporiums) and logistics and supply chain synergies from the procurement of domestic ethical fabric brands.

By extension, local currency valuations also become a factor of relevance. How do foreign exchange rates for overseas ethical brands compare to procurement from domestic brands that offer similar value?

Approaching the topic like this essentially narrows the issue of effective pricing decisions to the influence of supply chain factors. How does Firm X address this practical assumption? One way is by looking at evidence-based models of price elasticity using a package such as R, where Marshallian (uncompensated) price elasticities and Hicksian (compensated) price elasticities can be estimated. Assuming a price vector that combines a dataframe reflecting sale prices and quantities.

Q: Can you think of any scenarios where there may be a conflict or tension between volatility and regulation affecting Firm X?

This is a great warmup question to get the loins gurgling. Not only is the topic of volatility a matter for globalisation, but it is also a matter for regulation. Take, for instance, the example of Credit Suisse Group and its case as a defendant in a trial where the Group and its then Chief Executive Thiam Tidjane were wrongly accused of manipulating a key market volatility benchmark (the inverse VIX). The V in VUCA also reminded me of what the Canadian environmental activist and writer, Naomi Klein, eloquently refers to as ‘Beyond Borders’ in a 2001 conference speech come New Left Review article entitled: ‘Reclaiming the Commons’. I am reminded at this juncture of Prof. Alan Barrell’s use of the same language in his presentations on ‘Entrepreneurship Without Borders’.

Q: Any crossover between external factors affecting Firm X and internal factors?

• External: PESTLE - environment (COVID-19’s HR response given treatment of racial discrimination in frontline occupations in England and Wales).
• Internal: Strategic changes/Managerialism (Al Mahameed, Yates, & Gebreiter, 2024)
• Africa and Nigeria – where studies focused on the link between 1) trade union survival strategies, 2) the new employment relations climate, and 3) the subject of globalisation (Betchoo, 2013)

References 

Al Mahameed, M., Yates, D., and Gebreiter, F. (2024). Management as Ideology: “New” Managerialism and the Corporate University in the period of Covid‐19. Financial Accountability and Management, 40(1), 34-57 (Accessed on 04 May 2025)

Betchoo, N. K. (2023) ‘Youth empowerment as a human resource development strategy in Mauritius’, Issues in Business Management and Economics, 1(8), pp. 218-229. Available at: https://journalissues.org/ibme/abstract/betchoo/ (Accessed on 04 May 2025) 

Holbrook, P. and Beadle, H. (2025) ‘B811 - Human Resource Management in Context Tutorial 1 - introduction’, Open University Business School (Accessed on 03 May 2025)

Klein, N. (2001) ‘Reclaiming the Commons’, New Left Review, Available at: https://newleftreview-org.libezproxy.open.ac.uk/issues/ii9/articles/naomi-klein-reclaiming-the-commons (Accessed on 04 May 2025)

Interpreting and adapting Cochrane’s “PICO”framework to the example of a systematic review of literature on type-2 diabetes concerning patients who may be positively affected as a result of the possible interventions offered by a new patented drug such as Ozempic, what one finds is a perfect example of a T1 or T2 research opportunity. Depending on how you might categorise such a study.

But because it is scientific in its premise first and foremost as opposed to being focused on the science of applicability we’ll call it T1.5. One might define the T1.5 research question (using a PICO systematic review) as follows:

Reading Gubbins and Rousseau (2015), the first thing I realised is its very critical of Government's perception of University funding, which reminded me of a few interesting examples where I had encountered first-hand how research and practice are mutually disaggregated. Then I recalled when I attended a 1-day workshop held by Recruitment Leaders Connect. Bill Boorman was the instructor for the day leading us through the presentation, bless his socks. He was a great speaker nonetheless. 

I remember it like it was yesterday. I was sat next to Howard and Billy, who each were presenting two contrasting bits of information. Howard, how recruitment process outsourcing (RPO) was the next big thing in recruitment. and Billy who was a 360 recruiter, was outright promoting the contingent agency recruiter grind.

This then reminded me of Gubbins' and Rousseau (2015) who in their paper mention this coupled concept of translational research - where research on theory informs interventions and outcomes in practice. What's so important about this. What does it represent? How does it apply to my example of Howard and RPO at the conference I attended? and HRD in practice, more generally?

The truth is I don't yet know and I can only guestimate because there are various factors at play. Race, level of experience, cultural competences, differences and significances across time between RPO and agency work. But what I do know is (academic) research can be seen to inform events such as Recruitment Leaders Connect - to an extent. If you believe I am talking rubbish, I am not. All you have to do is watch UChicago's YouTube video on how to write academically to understand that academia can be a very self-centered profession that occasionally misses and ignores its various audiences. 

As Gubbins and Rousseau (2015: 110) put it in their article: "Bennis and O’Toole (2005) argued that business schools emphasize research that speaks to the concerns of academics, while ignoring the connections to problems of management practice. According to their logic, by ending the knowledge generation process with articles that only other academics read, business schools are on a path to their own irrelevance."

I'll aim to complete Gubbins and Rousseau before I reflect conclusively on my opinion on these existential questions.

References

So, I've read the module outline and have a brief idea how the process of creating impactful difference in Human Resource Development (HRD) looks from an academic perspective.

I've noted HRD Professionals and Consultants should, when aiding an organization:

• Highlight L&D Challenges, Difficulties and Obstacles is the starting point - Ascertain organization hurdles
• Follow Evidence-Based Philosophy - Briner's 6 A's in an organizational context
• Source Relevant HRD Data - Based on informed conversation, surveys, and feedback from colleagues
• Pinpoint a credible HRD Strategy - Decide on the approach
• Inspect and Engage Empirical Data - Run regressions, spot patterns that respond to and inform the challenge
• Create and Finalise HRD Policy - This is the final step in my notes from the module outline and involves amalgamating the challenges with relevant solutions that are most widely accepted to be unique to the original obstacle.

How close is this to the actual accepted process? 

NB: I also found that this optional module structure is very consistent with the other F93 modules (it includes critical perspectives, theory and practice, ethics, and sustainability), making the module content very digestible and much easier to follow.

Thank you Open University for a great welcome and equally impressive introduction to the module.

I’m pleased to share with my fellow Open University colleagues that my recent article has been accepted for publication on arXiv.org.

This paper presents a study into an econometric analysis of competitive equilibria through the lens of static game theory. Specifically, it applies Bertrand's duopoly framework—where prices converge to marginal cost at equilibrium—to illustrate how Pareto efficiency can arise when forbearance emerges as a strategic profile under conditions of incomplete information.

🔗 Read the full article here: https://arxiv.org/abs/2503.22825

Road to 100k

Thanks for the 80,000 blog views. Guess what? Only 20k more to a whopping 100,000. Wow!

Anyway, so, this morning, I was prompted to reflect on personal pursuits by Dr Kaul in our meeting. One thing about pursuits, both academic and professional, is that these endeavors have become relatively narrow and streamlined in recent years. The only paid work I have ever applied for or been in for have been executive staffing roles, mainly because as anyone who knows can testify, staffing is a sector I am quite interested in, alongside Learning and Development (B814), and Employee Relations (B813). 

However, as the fit notes era is well and truly behind me, I have become quite "choosy" in my adult years concerning opportunity (I guess some of us have to be) and in terms of my outlook and career potential. 

In utopia, I tabled the pursuit (it is much rather an aspiration) of becoming a Research Assistant (Post-Doc) to a prominent Professor of HRM at London Business School or King's College's Department of Human Resources, which is a bricks-and-mortar University, which I greatly admire. 

However, even I had to acknowledge to Dr. Kaul, that there is a very small caveat that this career path inherently has. Though strikingly rich in vernacular and academic esteem, I may choose its course (spotting gaps, conducting original research, co-authoring, etc) and live to realize it was perhaps a feat only a lucky few could accomplish in their careers in academia.

That got me thinking. Whatever happened to good old shareholder capitalism? 

A major element of Tianxi Wang's module is controversial. We all know what shareholder capitalism is though, right? Well if you didn't, I'll briefly explain. This term generally describes theories that deal with the concern of investors as owners of corporations (Jensen and Meckling, 1976) which are equally important to the rise of startups and smaller enterprises. It aims to answer the question: How can shareholders, who have the long-term value and ownership of the firm at heart, best delegate the control of decisions made by managerial actors who are entrusted to maintain this value, to varying degrees of stewardship? This is often called the 'separation of ownership and control' in the United Kingdom and other countries.

In Jensen and Meckling's (1976) abstract, we find the familiar problem of principal agency. It reads: "We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence." What exactly do Jensen and Meckling mean here by the use of the word "costs"? 

Well, Prof. Edmans, and others such as Varela (2017), have argued, that they mean agency costs, which "arise when the firm is run by a manager who owns less than 100 percent of the company—so there’s a separation between shareholders (the ‘principal’) and the manager (‘agent’) who acts on their behalf. Agency costs arise when there is a ‘divergence between the agent’s decisions and those decisions that would maximize the welfare of the principal’. Human Resources as a function, are therefore quietly implicated in a very real sense in ideas that go above and beyond the importance of something as simple and simultaneously as complex as strategic planning. We are talking more along the lines of what value, governance, and stewardship on behalf of the principal owners of a firm, are, and in what Prof. Edmans refers to - as the overall "welfare" of the firm. To sum up, shareholder capitalism is of great importance to our perceptions of pluralism in Human Resource Management as a discipline and should be given more credence and granted more clemency. 

References

1. Jensen, M.C. and Meckling, W.H. (1976) 'Theory of the firm: Managerial behavior, agency costs, and ownership structure', Journal of Financial Economics, 3(4), pp. 305-360 - Available at https://www.sfu.ca/~wainwrig/Econ400/jensen-meckling.pdf

2. Edmans, A. (2021) 'What Stakeholder Capitalism Can Learn from Jensen and Meckling'. Oxford Law Blogs - Available at https://blogs.law.ox.ac.uk/business-law-blog/blog/2021/05/what-stakeholder-capitalism-can-learn-jensen-and-meckling

3. Varela, O. (2017) "Agency costs” when agents perform better than owners, Finance Research Letters, 23, pp. 103-113 - Available at https://doi.org/10.1016/j.frl.2017.07.019

This note presents a question on the legitimacy of the so-called ‘dualist’ approach to the implementation of international law into domestic law (Ministry of Justice, 2021: ss.48)

My arguments are supported by three concise references:

• McGoldrick’s (2001: 914) position paper on the incompatibility of UK law with the European Convention on Human Rights, which cites an area known as ‘new’ interpretive obligation
• Transformative constitutionalism is a type of generalized political philosophy (used in a discursive context) according to Prof. Karl Klare (Hunt, 2002: 88)
• Prof. Edwin Egede and Cheluchi Onyemelukwe’s view, according to Ebenezer Durojaye, is that the Nigerian Constitution is superior and not equivalent to the African Charter on Human and Peoples' Rights (in Nigeria) but that the African Charter should nevertheless be afforded the privilege of full effect in Nigerian Constitution (Killander, 2010:159)

How is ‘dualism’ perceived among employment law, labour law, and human rights practitioners?

References

Hunt, M. (1999). The Human Rights Act and legal culture: the judiciary and the legal profession. Journal of Law and Society, 26(1), 86-102. (Accessed on 23 October 2024)

Killander, M. (2010) International law and domestic human rights litigation in Africa. Pretoria University Law Press PULP. (Accessed on 23 October 2024)

McGoldrick, D. (2001). The United Kingdom's Human Rights Act 1998 in Theory and Practice. International & Comparative Law Quarterly, 50(4), 901-953.

Ministry of Justice (2021) ‘Human Rights Act Reform: A Modern Bill of Rights: A consultation to reform the Human Rights Act 1998’, Crown copyright, Available at https://consult.justice.gov.uk/human-rights/human-rights-act-reform/supporting_documents/humanrightsreformconsultation.pdf (Accessed on 23 October 2024)

Shale, Itumeleng. (2019). Historical perspective on the place of international human rights treaties in the legal system of Lesotho: moving beyond the monist-dualist dichotomy. African Human Rights Law Journal, 19(1), 193-218. (Accessed on 23 October 2024)