How Much Slack Is in the Labor Market? That Depends on What You Mean by Slack

Murat Tasci and Randal Verbrugge

Economic Commentary, 2014, issue Oct

Abstract: Estimates of labor market slack can diverge a great deal depending on how slack is defined. We calculate slack using five different concepts that all focus on a single labor market indicator, the unemployment rate. We show that the estimates all provide useful?but different?information. We argue that choosing the best measure of slack depends on the question being asked. If the question is, ?Has the unemployment rate reached its longer-run normal level?? then our answer is, ?Almost.? But significant uncertainty surrounds the estimates; and others may wish to consider additional labor market indicators.

Date: 2014
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