Labour shortages and wage growth

Erik Frohm

No 2576, Working Paper Series from European Central Bank

Abstract: Tight labour markets are usually accompanied by mounting wage pressures. Yet, in the past decade, wage growth has remained subdued despite the appearance of widespread labour shortages. This paper re-examines labour market conditions since 2007 through the lens of a novel indicator, relative labour shortages (RLS), based on data from a large representative business survey in Sweden. Four main results emerge from the analysis: (1), the time-series average of RLS suggested much weaker labour market conditions during the 2013–2019 recovery from the Great Recession and during the Covid-19 pandemic in 2020 than qualitative surveys or the vacancy-unemployment ratio. (2), the reason is that RLS contains a time-varying intensive margin of labour shortages not recorded in most surveys, which has been trending downwards since the Great Recession. (3), fixed-effects regressions with several aggregate-, sector, region and establishment-level controls confirm that RLS is strongly and positively correlated with annual wage growth at the establishment level. (4), sector-level wage Phillips curves show that the subdued level of RLS can help explain the sluggish wage growth in Sweden since the Great Recession. JEL Classification: C80, E31, E60, J23, J31

Keywords: labour markets; survey data; wage inflation (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-eec, nep-isf, nep-lma and nep-mac
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Labor shortages and wage growth (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20212576

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