A New Indicator of Labor Market Tightness for Predicting Wage Inflation

Sebastian Heise, Jeremy Pearce and Jacob Weber ()

No 20241009, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: A key question in economic policy is how labor market tightness affects wage inflation and ultimately prices. In this post, we highlight the importance of two measures of tightness in determining wage growth: the quits rate, and vacancies per searcher (V/S)—where searchers include both employed and non-employed job seekers. Amongst a broad set of indicators, we find that these two measures are independently the most strongly correlated with wage inflation. We construct a new index, called the Heise-Pearce-Weber (HPW) Tightness Index, which is a composite of quits and vacancies per searcher, and show that it performs best of all in explaining U.S. wage growth, including over the COVID pandemic and recovery.

Keywords: wages; labor market; Phillips curve; inflation (search for similar items in EconPapers)
JEL-codes: E24 E31 (search for similar items in EconPapers)
Date: 2024-10-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://libertystreeteconomics.newyorkfed.org/2024 ... ting-wage-inflation/ Full text (text/html)
https://www.newyorkfed.org/medialibrary/media/rese ... or-market-slack_data Chart data (application/vnd.ms-excel)

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:98941

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 ().