How Tight are U.S. Labor Markets? / Alex Domash, Lawrence H. Summers.

Format:

Book

Author/Creator:

Domash, Alex.

Contributor:

National Bureau of Economic Research.

Summers, Lawrence H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29739.

NBER working paper series no. w29739

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

Since the outset of the Covid-19 pandemic, labor market indicators that traditionally move together have been sending different signals about the degree of slack in the U.S. labor market. While some indicators on the supply-side, such as the prime-age employment-to-population ratio, suggest that there is still some slack in the labor market, other indicators on the demand-side, such as the job vacancy rate and the quits rate, imply that the labor market is already very tight. In light of these divergent signals, this paper compares alternative labor market indicators as predictors of wage inflation. Using national time series and state cross-section data, we find (i) unemployment is a better predictor of wage inflation than non-employment and (ii) vacancy rates and quit rates have substantial predictive power for wage inflation. We highlight the fact that vacancy and quit rates currently experienced in the United States correspond to a degree of labor market tightness previously associated with sub-2 percent unemployment rates. Finally, we show that predicted firm-side unemployment has dominant explanatory power with respect to subsequent inflation. Our results, along with a cursory analysis of labor force participation information, suggest that labor market tightness is likely to contribute significantly to inflationary pressure in the United States for some time to come.

Notes:

Print version record

February 2022.