Cyclical signals from the labor market

Tino Berger, Paul David Boll, James Morley and Benjamin Wong

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We consider which labor market variables are the most informative for estimating and now-casting the U.S. output gap using a multivariate trend-cycle decomposition. Although the unemployment rate clearly contains important cyclical information, it also appears to reflect more persistent movements related to labor force participation that could distort inferences about the output gap. Instead, we show that the alternative U-2 unemployment rate (job losers as a percentage of the labor force) provides a more purely cyclical indicator of labor market conditions. To a lesser extent, but consistent with a link of the output gap to real labor costs in a New Keynesian setting, we also find that average hourly earnings are informative about the output gap.

Keywords: Nowcasting; output gap; Covid-19; U-2 unemployment rate; average hourly earnings (search for similar items in EconPapers)
JEL-codes: C53 E24 E32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2021-10
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2021-91

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