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Recent evidence on the relationship between unemployment and wage growth

  • Daniel Aaronson
  • Daniel Sullivan

The current expansion has delivered the lowest unemployment rates in decades, yet nominal wage growth has remained relatively contained. This suggests to some a shift in the historical relationship between unemployment and wage growth. We look across the states for more timely evidence of a change in this relationship. We find some evidence that the elasticity of real wage growth with respect to unemployment has fallen recently, a result that is not due to a compositional shift toward college-educated workers. However, evidence of a weakened relationship is itself weak, depending on inherently arbitrary decisions about when a shift may have occurred. In addition, we find that levels of real wage growth associated with high, medium, and low unemployment have remained relatively constant.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-00-27.

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Date of creation: 2000
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Handle: RePEc:fip:fedhwp:wp-00-27
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  1. Blanchard, O & Katz, L, 1996. "What We Know and Do Not Know about the Natural Rate of Unemployment," Working papers 96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. David Card & Dean Hyslop, 1997. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 71-122 National Bureau of Economic Research, Inc.
  3. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
  4. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  5. Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
  6. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March.
  7. James R. Spletzer & Katharine G. Abraham & Jay C. Stewart, 1999. "Why Do Different Wage Series Tell Different Stories?," American Economic Review, American Economic Association, vol. 89(2), pages 34-39, May.
  8. Danial Aaronson & Daniel G. Sullivan, 1999. "Worker insecurity and aggregate wage growth," Working Paper Series WP-99-30, Federal Reserve Bank of Chicago.
  9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  10. Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series 1999-49, Board of Governors of the Federal Reserve System (U.S.).
  11. Stephen R. G. Jones & W. Craig Riddell, . "The Measurement Of Unemployment: An Empirical Approach," Canadian International Labour Network Working Papers 09, McMaster University.
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