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Sunday, August 24, 2014

This is why wages have risen so slowly. (But the Fed can help!)

Today's post was shared by Steven Greenhouse and comes from

It’s no coincidence that there’s been an outpouring of research on wage trends of late, just in time for the annual meeting of the world’s central bankers at Jackson Hole, Wyo. But one noted monetary expert who should but won’t be there is Elsa, the ice queen from “Frozen,” whose policy of “Let it Go” is critically important when it comes to allowing for non-inflationary wage growth (so perhaps “let ‘em grow” is a bit more precise).
This new spate of analysis, which I’ll describe in a moment, generates two important findings. First, considerable lingering labor market slack is still a drag on wage growth. Second, the linkages between wage growth and price inflation are not very tight at all. Both findings should lead those poised to snuff out wage growth — in the case of the Fed, by raising interest rates — to stand down.
A key challenge for the Fed in recent years has been figuring out just how tight or slack the job market is, a question that’s been harder than usual because the unemployment rate isn’t as revealing a signal as usual. The reasons for the weaker signal are weak labor force participation and unprecedented shares of long-term unemployment, both of which dampen the jobless rate’s traditional dominance as a measure of labor market tautness. Simply put, the job market...
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