Labor Market Dynamics During the 2021-24 Inflation Surge

June 26, 2025

Andrés Blanco Research Economist and Associate Adviser

Summary

This Policy Hub paper revisits the common interpretation that the surge in the vacancy-to-unemployment ratio during the 2021–24 inflation episode primarily reflected an overheated labor market. Instead, I argue that the increase in vacancies relative to unemployment was largely driven by falling real wages and a rise in job-to-job transitions, as workers sought to recover lost purchasing power, rather than by broad-based labor market overheating.

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Policy Hub 2025-3

Data Stories in a Minute:

Key findings:

The US labor market from 2021 to 2024 was characterized by a rise in quits, job-to-job transitions, and the vacancy-to-unemployment ratio, together with a decline in layoffs and real wages.
This Policy Hub paper highlights the importance of understanding how inflation distorts traditional indicators of labor market tightness. Elevated vacancy-to-unemployment ratios during inflationary periods may not reflect a booming labor market but rather increased churn and frictions due to nominal wage rigidity.

Center Affiliation: Center for Financial Innovation and Stability

JEL classification: E43, E52

Key words: inflation surges, market tightness, fiscal and monetary policy

Digital Object Identifier (DOI) https://doi.org/10.29338/ph2025-03