Erik Frohm, 11 October 2020

Until the outbreak of the Covid-19 crisis, wage growth had remained sluggish in many advanced economies, while labour markets appear to have improved substantially. This column argues that real-time indicators based on qualitative survey data provided an overly optimistic picture of labour market conditions in the aftermath of the Great Recession. A new establishment-level measure in Sweden, that utilises survey respondents’ quantitative assessments of labour shortages, overcomes some of the shortcomings of purely qualitative data and indicates that labour markets have typically been much weaker than initially assumed during the recovery. As labour shortages are strongly correlated with wage growth at the establishment level, their lower level can help explain why wage growth in Sweden has been sluggish. 

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