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Compensation Growth and Slack in the Current Economic Environment

Author

Listed:
  • M. Henry Linder
  • Richard Peach
  • Robert W. Rich

Abstract

Following a significant slowing during the recent recession, growth in various labor compensation measures has stabilized during the past two to three years. This stabilization is puzzling because it’s widely held that a significant amount of slack remains in the economy. Accordingly, this large amount of slack should result in a further slowing in compensation (wage) growth. In this post, we show that there’s a very mild trade-off between compensation growth and resource slack, even though slack is sizable. Consequently, the observation that there’s slow but steady growth in labor compensation measures is consistent with a large amount of slack in the current economic environment.

Suggested Citation

  • M. Henry Linder & Richard Peach & Robert W. Rich, 2012. "Compensation Growth and Slack in the Current Economic Environment," Liberty Street Economics 20121119, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86838
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    Cited by:

    1. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España.

    More about this item

    Keywords

    Compensation Growth; Wage-inflation Phillips Curve; unemployment gap; Nonlinear Relationship; Slack;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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