Going Deeper Into the Link Between the Labour Market and Inflation

The unemployment rate is one of the most closely watched economic indicators. However, it has important limitations and shortcomings as a measure of the state of the labour market. This could help to explain the fact that in traditional Phillips curves unemployment explains but a small part of inflation. This paper tries to mitigate such problems going deeper into labour market indicators. With that aim alternative unemployment rates are built and assessed, along with disaggregated unemployment rates and other labour market indicators. The evidence shows that some of those indicators have considerably greater explanatory power over inflation than the traditional unemployment rate and, therefore, should be followed closely by policymakers.