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September 2, 2014

From Our Archive: Reading Labor Market Slack

Anna Snider

In her speech “Labor Market Dynamics and Monetary Policy” at the Kansas City Fed’s recent Jackson Hole symposium, Fed chairwoman Janet Yellen discussed economic puzzles challenging policymakers, including topics we’ve addressed on Liberty Street Economics. A central and much-debated question is: how tight is the current labor market? The unemployment rate is one key measure. But in February, a team of our bloggers proposed a finer tool to measure slack—one that distinguishes the effects of long- and short-duration unemployment on wage inflation.

Other Liberty Street Economics bloggers suggested tweaking the calculation of the employment-population (E/P) ratio for a better read on the extent of labor market recovery. As authors Samuel Kapon and Joseph Tracy observed, the E/P ratio, as traditionally measured, fell by 4.1 percentage points in the Great Recession and has since held at this level, indicating significant slack. But that pre-to-post-recession gap narrows significantly—to roughly 0.7 to 0.9 percentage point—when today’s actual E/P ratio is measured against a demographically adjusted baseline ratio.

Our blog has also explored the increase in job polarization. Jaison Abel and Richard Deitz documented the substantial growth in high-skill and low-skill jobs together with a “hollowing out” of middle-skill jobs in the United States and the New York-New Jersey region over the last decades. Stefania Albanesi and coauthors asked: “Is job polarization holding back the labor market?” After comparing unemployment and job-finding rates for workers in “routine” and “nonroutine” occupations, the authors concluded that the trend wasn’t a significant contributor to the sluggish recovery.

More recently, in two posts, Marco Del Negro, Marc Giannoni, Raiden Hasegawa, and Frank Schorfheide explained how New Keynesian theory can help shed light on “missing deflation” in the face of large and persistent slack in the current recovery. Finally, Kapon and Ayşegül Şahin guided readers through a new set of interactive charts on the New York Fed’s website—which are updated monthly—measuring “eight different faces” of the labor market, including unemployment, labor demand, job availability, and mismatch. Take a look through our blog archive to learn more.

Archived Posts:
The Long and Short of It: The Impact of Unemployment Duration on Compensation Growth
M. Henry Linder, Richard Peach, and Robert Rich

A Mis-Leading Labor Market Indicator
Samuel Kapon and Joseph Tracy

Job Polarization in the United States: A Widening Gap and Shrinking Middle
Jaison R. Abel and Richard Deitz

Just Released: Regional Economic Press Briefing on Job Polarization and Rising Inequality
Jaison R. Abel and Richard Deitz

Is Job Polarization Holding Back the Labor Market?
Stefania Albanesi, Victoria Gregory, Christina Patterson, and Ayşegül Şahin

Inflation in the Great Recession and New Keynesian Models
Marco Del Negro, Marc Giannoni, Raiden Hasegawa, and Frank Schorfheide

Why Didn’t Inflation Collapse in the Great Recession?
Marco Del Negro, Marc Giannoni, Raiden Hasegawa, and Frank Schorfheide

Just Released: Beyond the Unemployment Rate: Eight Different Faces of the Labor Market
Samuel Kapon and Ayşegül Şahin

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Anna Snider is a cross-media editor in the Federal Reserve Bank of New York’s Research and Statistics Group.

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