The Long and Short of It: The Impact of Unemployment Duration on Compensation Growth

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

No 20140212, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: How tight is the labor market? The unemployment rate is down substantially from its October 2009 peak, but two-thirds of the decline is due to people dropping out of the labor force. In addition, an unusually large share of the unemployed has been out of work for twenty-seven weeks or more—the long-duration unemployed. These statistics suggest that there remains a great deal of slack in U.S. labor markets, which should be putting downward pressure on labor compensation. Instead, compensation growth has moved modestly higher since 2009. A potential explanation is that the long-duration unemployed exert less influence on wages than the short-duration unemployed, a hypothesis we examine here. While preliminary, our findings provide some support for this hypothesis and show that models taking into account unemployment duration produce more accurate forecasts of compensation growth.

Keywords: Compensation Growth; Short-term Unemployment; Phillips Curve (search for similar items in EconPapers)
JEL-codes: E2 (search for similar items in EconPapers)
Date: 2014-02-12
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://libertystreeteconomics.newyorkfed.org/2014 ... nsation-growth-.html Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednls:86922

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Liberty Street Economics from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().