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The wage curve after the Great Recession

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  • David Blanchflower
  • Alex Bryson
  • Jackson Spurling

Abstract

Most economists maintain that the labour market in the USA (and elsewhere) is ‘tight’ because unemployment rates are low, and the Beveridge curve (the vacancies‐to‐unemployment ratio) is high. They infer from this that there is potential for wage‐push inflation. However, real wages fell rapidly in 2022, and prior to that, real wages had been stagnant for some time. We show that unemployment is not key to understanding wage formation in the USA, and has not been since the Great Recession. Instead, we show that rates of underemployment (the percentage of workers with part‐time hours who would prefer more hours) and the rate of inactivity (the percentage of the civilian adult population who are out of the labour force) reduce wage pressure in the USA. This finding holds in panel data with state and year fixed effects in both annual and quarterly data for the period 1980–2022, and is supportive of a wage curve that fits the data much better than a Phillips curve. The unemployment rate no longer enters significantly negative in wage equations, however specified, in the years since 2008.

Suggested Citation

  • David Blanchflower & Alex Bryson & Jackson Spurling, 2024. "The wage curve after the Great Recession," Economica, London School of Economics and Political Science, vol. 91(362), pages 653-668, April.
  • Handle: RePEc:bla:econom:v:91:y:2024:i:362:p:653-668
    DOI: 10.1111/ecca.12515
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    3. Oleksiy Kryvtsov & James (Jim) C. MacGee & Luis Uzeda, 2023. "The 2021–22 Surge in Inflation," Discussion Papers 2023-3, Bank of Canada.

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    More about this item

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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