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A labor market view on the risks of a U.S. hard landing

Author

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  • Alex Domash
  • Lawrence H. Summers

Abstract

This paper uses historical labor market data to assess the plausibility that the Federal Reserve can engineer a soft landing for the economy. We first show that the labor market today is significantly tighter than implied by the unemployment rate: the 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. We highlight that the super-tight labor market coincides with current wage inflation of 6.5 percent – the highest level experienced in the past 40 years – and that firm-side slack measures predict further increases in wage inflation over the coming year. Finally, we show that high levels of wage inflation have historically been associated with a substantial risk of a recession over the next one to two years. We argue that periods that historically have been hailed as successful soft landings have little in common with the present moment. Our results suggest a very low likelihood that the Federal Reserve can reduce inflation without causing a significant slowdown in economic activity.

Suggested Citation

  • Alex Domash & Lawrence H. Summers, 2022. "A labor market view on the risks of a U.S. hard landing," NBER Working Papers 29910, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29910
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    Cited by:

    1. Oleksiy Kryvtsov & James (Jim) C. MacGee & Luis Uzeda, 2023. "The 2021–22 Surge in Inflation," Discussion Papers 2023-3, Bank of Canada.
    2. Jose Maria Barrero & Nicholas Bloom & Steven J. Davis, 2023. "Long Social Distancing," Journal of Labor Economics, University of Chicago Press, vol. 41(S1), pages 129-172.
    3. Seip, Knut L. & Zhang, Dan, 2025. "A tale of the two recessions 2008 and 2020: What do the Taylor rule, the Phillips curve and Okun's law tell?," Journal of Policy Modeling, Elsevier, vol. 47(3), pages 681-701.
    4. Salvatore Lo Bello & Eliana Viviano, 2024. "Some considerations on the Phillips curve after the pandemic," Questioni di Economia e Finanza (Occasional Papers) 842, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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