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Federal Reserve Bank of Chicago
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Recent evidence on the relationship between unemployment and wage growth
Daniel Aaronson
Daniel G. Sullivan
Abstract

The current expansion has delivered the lowest unemployment rates in decades, yet nominal wage growth has remained relatively contained. This suggests to some a shift in the historical relationship between unemployment and wage growth. We look across the states for more timely evidence of a change in this relationship. We find some evidence that the elasticity of real wage growth with respect to unemployment has fallen recently, a result that is not due to a compositional shift toward college-educated workers. However, evidence of a weakened relationship is itself weak, depending on inherently arbitrary decisions about when a shift may have occurred. In addition, we find that levels of real wage growth associated with high, medium, and low unemployment have remained relatively constant.


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Daniel Aaronson & Daniel G. Sullivan, Recent evidence on the relationship between unemployment and wage growth, Federal Reserve Bank of Chicago, Working Paper Series WP-00-27, 2000.
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Keywords: Unemployment ; Wages ; Prices
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