Should-Read: Nick Bunker: Just how tight is the U.S. labor market?

Should-Read: Nick Bunker: Just how tight is the U.S. labor market?: “From the end of the 1991 recession until the second quarter of 2017, the prime employment rate explains about 80 percent of the variation in nominal wage growth…

…The unemployment rate… explains 50 percent of the variation in nominal wage growth…. Models that include both the unemployment rate and the job switching rate explain less of the variation in wage or compensation growth than the prime employment rate by itself…. When unemployment is included with the prime employment rate, an increase in the unemployment rate is associated with an increase in wage and compensation growth—the opposite of what we might expect….

The… U.S. labor market is not as tight as the unemployment rate would have us believe…. The strong relationship between the prime employment rate and several measures of wage and compensation growth suggest a number of nonemployed workers who can and may find a job are not being counted in the unemployment rate…. Many workers who seem locked out of the labor force may, in fact, be able to get a job if the labor market continues to tighten…. Overestimating the strength of the labor market and leaving these workers unemployed would be a tragedy not only for those workers, but for the U.S. economy as a whole.