Morning Must-Read: Jared Bernstein: Chair Yellen Looks Under New Rocks, Finds Same Thing that’s Under Old Rocks

Jared Bernstein: Chair Yellen Looks Under New Rocks, Finds Same Thing that’s Under Old Rocks: “I yield to no one in my admiration for… Janet Yellen…

…So I was taken aback a bit by a section in her… speech… where she gave a number of reasons why the absence of wage pressures may not, paradoxically, be signaling that considerable slack remains in the job market…. I don’t think that’s the case at all here…. Each of her three reasons look like additional reasons not to slow the economy and preempt wage growth by tightening too soon….

Nominal wage rigidity… implies that until inflation erodes real wages enough to generate more employment demand (i.e., moving down the demand curve), or until there’s enough labor demand to necessitate hiring at current real wage levels (i.e., the demand curve moves out), there’s no reason to tighten….

Structural… forces… reducing labor’s share… [are a reason to promote] very tight labor markets to rebalance ‘factor income shares’…. Depressed labor force participation… might lead to wage pressures in the near term, but as labor demand strengthened, those sideliners would get pulled back in which would then dampen those pressures…. Even more so than the other two reasons, this one especially calls for extended monetary support of the job market…