How Should the Fed Interpret Slow Wage Growth?

Marianna Kudlyak, Thomas Lubik and Karl Rhodes

Richmond Fed Economic Brief, 2015, issue February

Abstract: During the current recovery, policymakers have debated whether slow wage growth indicates labor market "slack" that is not adequately reflected in the unemployment rate alone. The relationship?or lack thereof?between the unemployment rate and wage growth has challenged macroeconomists for decades. Empirical studies using micro data find that individual wages are procyclical, but attempting to use aggregate measures of wage growth to determine the level of "slack" in the labor market would be highly difficult and potentially misleading.

Date: 2015
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