"There is “hidden slack” in the labor market because many people were driven out of the workforce by the severity of the Great Recession. The composition of the workforce is changing in ways that affect measured, economy-wide pay. Businesses are using levers other than wages to attract workers. Many of us are in for pay cuts that we should have received during the Great Recession but didn’t due to employers’ reluctance to reduce nominal pay. And maybe you’re reluctant to go to the boss and ask for a raise?"There could be slack since the percentage of 25-54 year olds, although rising, has still not reached the pre-recession peak. See last week's post The percentage of 25-54 year olds employed rose in June.
See also Labor Market Dynamics and Monetary Policy by former Fed Chair Janet Yellen.
"the sluggish pace of nominal and real wage growth in recent years may reflect the phenomenon of "pent-up wage deflation."15 The evidence suggests that many firms faced significant constraints in lowering compensation during the recession and the earlier part of the recovery because of "downward nominal wage rigidity"--namely, an inability or unwillingness on the part of firms to cut nominal wages. To the extent that firms faced limits in reducing real and nominal wages when the labor market was exceptionally weak, they may find that now they do not need to raise wages to attract qualified workers. As a result, wages might rise relatively slowly as the labor market strengthens. If pent-up wage deflation is holding down wage growth, the current very moderate wage growth could be a misleading signal of the degree of remaining slack."Here is a graph from today's WSJ:
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