Employer-to-employer (EE) transitions are when workers move from one job to another without being unemployed in between. EE transitions are important for the aggregate economy for several reasons.

• Persons typically change jobs when they’re offered higher salaries, so an economy with a high EE rate may have a higher level of labor earnings and more demand for goods and services.
• EE transitions also facilitate the reallocation of workers across jobs, so an economy with a high EE rate may have higher productivity and thus a higher supply of goods and services.

As a result, the EE transition rate affects both aggregate demand and supply in the economy, and thus it’s potentially relevant for understanding inflation dynamics.

FRED has data that track the probabilities of EE transitions between two consecutive months. The FRED graph above shows two versions of these probabilities: the monthly probability in blue, which is highly volatile and seasonal, and its 3-month moving average in red, which is smoother by construction and allows for a better view of the trends. The Philadelphia Fed provides the data shown in the FRED graph above, backed by research from Fujita, Moscarini, and Postel-Vinay.

Several other research papers have investigated the role of EE transitions in inflation dynamics, including seminal work from Moscarini and Postel-Vinay. Work by Serdar Birinci, Fatih Karahan, Yusuf Mercan, and Kurt See contribute to this literature by studying the following:

• how the wealth distribution impacts the quantitative effects of EE transitions on inflation dynamics 
• how the monetary authority should respond to fluctuations in the EE transition rate

In particular, Birinci, Karahan, Mercan, and See highlight that periods with similar unemployment rates but different EE rates (as during the recessions shown in the graph above) should lead to different policy responses as the EE rate largely affects inflation dynamics.

How this graph was created: In FRED, search for and select “Average Probability of U.S. Workers Making Employer to Employer Transitions, Percent, Seasonally Adjusted.” From the “Edit Graph” panel in the top right corner, use the “Add Line” tab to search for and select “3-Month Moving Average of Average Probability of U.S. Workers Making Employer to Employer Transitions.”

Suggested by Serdar Birinci.