Abstract

This paper examines how inflation affects the gender wage gap. Using matched comparisons among observationally similar women and men, we document two empirical facts. First, the gender wage gap systematically widens when inflation rises, following both demand- and supply-driven shocks. Second, women revise their labor-market beliefs more pessimistically than men in response to these same inflationary shocks, particularly regarding their own job prospects. We propose a mechanism linking these belief differences to the widening gender wage gap: women’s more pessimistic interpretation of inflationary shocks reduces their willingness to pursue nominal wage increases, slowing their wage growth relative to men when inflation rises. We formalize this mechanism in a two-agent New Keynesian search-and-matching model with imperfect information, in which women form pessimistic beliefs about underlying shocks. The model reproduces the observed inflation-induced widening of the gender wage gap, establishing a novel link between inflation and gender inequality.