Wage inflation and informal work

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.

Keywords: wage inflation; labor market slack; gig economy;

JEL Classification: J46; E24; E26; J21;

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Current Policy Perspectives

Publication Date: 2017-10-01

Number: 18-2

Pages: 28 pages