Compensation Growth and Slack in the Current Economic Environment

M. Henry Linder, Richard Peach () and Robert Rich

No 20121119, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Following a significant slowing during the recent recession, growth in various labor compensation measures has stabilized during the past two to three years. This stabilization is puzzling because it’s widely held that a significant amount of slack remains in the economy. Accordingly, this large amount of slack should result in a further slowing in compensation (wage) growth. In this post, we show that there’s a very mild trade-off between compensation growth and resource slack, even though slack is sizable. Consequently, the observation that there’s slow but steady growth in labor compensation measures is consistent with a large amount of slack in the current economic environment.

Keywords: Compensation Growth; Wage-inflation Phillips Curve; unemployment gap; Nonlinear Relationship; Slack (search for similar items in EconPapers)
JEL-codes: E2 (search for similar items in EconPapers)
Date: 2012-11-19
New Economics Papers: this item is included in nep-gro and nep-mac
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