Evening Must-Read: Gavyn Davies: Labour Under-Utilisation in America

It would be worth pointing out that the Fed hawks–Fisher, Plosser, and company–have been consistently wrong since at least 2007, and have never shown any signs of rethinking their positions as the world has surprised them…

Gavyn Davies: Labour under-utilisation in America: “If there is still a large margin of slack in the labour market…

…despite tumbling unemployment figures, the Fed is unlikely to tighten monetary conditions very much in the next couple of years. Slack will also keep the wages share in national income low, thus boosting the profits share further. The utilisation of labour resources in America is thus critical not only for monetary policy, but also for the outlook for US equities. The academic discipline of labour economics, which has not really been centre stage since the wage-push inflation of the 1970s, is therefore very much back in vogue…. Despite the fact that the official unemployment rate has fallen close to the Fed’s estimates of its ‘natural’ or equilibrium rate, few empirical labour economists seem to believe, at least with any certainty, that labour resources are near full utilisation at present…. The hawkish case is still represented by some regional presidents on the FOMC… Fisher…. Almost all economists in policy circles acknowledge that there is great uncertainty here…