Alex Domash, Lawrence H. Summers, 17 March 2022

Since the beginning of the pandemic, labour market indicators have been sending different signals about the degree of slack in the US labour market. This column uses time-series and cross-section data to show that firm-side unemployment – a measure that ties together the unemployment rate with the vacancy and quits rate – predicts wage inflation better than the unemployment rate or the employment ratio, and that firm-side unemployment currently experienced in the US corresponds to a degree of tightness previously associated with sub 2% unemployment. The findings suggest that labour markets in the US are extremely tight and will likely contribute to inflationary pressures for some time to come. 

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