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Wage inflation and informal work

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  • Anat Bracha
  • Mary A. Burke

Abstract

Despite very low unemployment in the United States in recent months, wage inflation has remained modest. This paper investigates the possibility that there is hidden labor market slack in the form of informal or gig economy work, which may help explain this wage growth puzzle. Using unique data from 2015 and 2016 that we collected through the Survey of Informal Work Participation ? part of the Federal Reserve Bank of New York?s Survey of Consumer Expectations ? we find indirect and direct evidence for this hypothesis. First, we find that a measure of informal labor is negatively associated with wage growth at the census division level, while we observe no significant association between wage growth and the U-3 or U-6 unemployment rate. Second, most informal work participants in our survey report that for some increase in pay, they would drop hours of informal work in exchange for added hours of formal work. Together our results suggest that informal work represents an economically significant amount of potential labor supply to the formal market that may reduce pressure on measured wages. We also discuss other interpretations of our data.

Suggested Citation

  • Anat Bracha & Mary A. Burke, 2017. "Wage inflation and informal work," Current Policy Perspectives 18-2, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcq:2018_002
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    References listed on IDEAS

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    1. David N.F. Bell & David G. Blanchflower, 2018. "The Lack of Wage Growth and the Falling NAIRU," National Institute Economic Review, National Institute of Economic and Social Research, vol. 245(1), pages 40-55, August.
    2. Paul Castillo B. & Carlos Montoro Ll., 2012. "Inflation Dynamics in the Presence of Informal Labour Markets," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(1), pages 4-31, April.
    3. Lawrence F. Katz & Alan B. Krueger, 2016. "The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015," NBER Working Papers 22667, National Bureau of Economic Research, Inc.
    4. Anat Bracha & Mary A. Burke, 2016. "Who counts as employed?: informal work, employment status, and labor market slack," Working Papers 16-29, Federal Reserve Bank of Boston.
    5. Katharine G. Abraham & John C. Haltiwanger & Kristin Sandusky & James R. Spletzer, 2017. "Measuring the Gig Economy: Current Knowledge and Open Issues," NBER Chapters, in: Measuring and Accounting for Innovation in the Twenty-First Century, pages 257-298, National Bureau of Economic Research, Inc.
    6. Bell, David N.F. & Blanchflower, David G., 2018. "The lack of wage growth and the falling NAIRU," National Institute Economic Review, National Institute of Economic and Social Research, vol. 245, pages 40-55, August.
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    Cited by:

    1. Gerald D. Cohen, 2020. "Measuring employment during COVID-19: challenges and opportunities," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 55(4), pages 229-239, October.
    2. Bracha, Anat & Burke, Mary A., 2021. "How Big is the Gig? The Extensive Margin, The Intensive Margin, and The Hidden Margin," Labour Economics, Elsevier, vol. 69(C).
    3. David N. F. Bell & David G. Blanchflower, 2021. "Underemployment in the United States and Europe," ILR Review, Cornell University, ILR School, vol. 74(1), pages 56-94, January.
    4. John Komlos, 2019. "The Real U.S. Unemployment Rate Is Twice the Official Rate, and the Phillips Curve," CESifo Working Paper Series 7859, CESifo.
    5. Olena Kostyshyna & Corinne Luu, 2019. "The Size and Characteristics of Informal (“Gig”) Work in Canada," Staff Analytical Notes 2019-6, Bank of Canada.

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    More about this item

    Keywords

    wage inflation; labor market slack; gig economy;
    All these keywords.

    JEL classification:

    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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