fbpx What is the best measure of labor market tightness? - Jason Furman | Harvard Kennedy School

Excerpt

November 22, 2021, Opinion: "Economists have long relied on measures of slack, like the unemployment rate, to predict variables like the inflation rate or nominal wage growth. This analysis investigates three questions: First, what was the best univariate predictor of changes in wage or price growth in the United States over the roughly two decades prior to the pandemic? Second, which measures of wage or price growth are most predictable? And third, how might the answers to these two questions be changing in the current circumstances and going forward? Based on performance prior to the pandemic, all of the predictors work in a broadly similar manner in predicting different measures of wage and price growth. The job quits rate is the best predictor of nominal wage growth followed by prime-age (25-54) nonemployment and total unemployment. The ratio of unemployed workers to job openings is the best predictor of core Consumer Price Index (CPI) inflation followed closely by the quits rate and the unemployment rate. And prime-age nonemployment is the best predictor of real wage growth." Read Via PIIE

HKS Author - Jason Furman and Willie Powell