INFLATION IN A TIGHT LABOUR MARKET: MEASURING THE DEGREE OF LABOUR MARKET TIGHTNESS AND THE MECHANISMS OF TRANSMISSION TO INFLATION

This dissertation analyses labour market tightness and if this impacts inflation pressures, specifically in Portugal, as this is a key factor in post-pandemic inflation dynamics. It uses a synthetic indicator, the HPW, to measure the labour market tightness in Portugal, which incorporates the quits rate and the vacancies-to-effective-job-seeker ratio. This indicator proves to be able to measure tightness better than the unemployment rate. Furthermore, through Granger tests of causality, it proves the influence of labour market conditions, such as the labour hoarding behaviour, on wage inflation pressures. These findings suggest that labour market imbalances are crucial for Portuguese wage dynamics.