Discussion Paper

Compensation Growth and Slack in the Current Economic Environment


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.

Keywords: Compensation Growth; Wage-inflation Phillips Curve; Unemplyment Gap; Nonlinear Relationship; Slack;

JEL Classification: E2;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2012-11-19

Number: 20121119