FYI: In the wake of a severe recession and a sluggish recovery, labor marketslack cannot be gauged solely in terms of the conventional measure of theunemployment rate (that is, the number of individuals who are not working atall and actively searching for a job). Rather, assessments of the employmentgap should reflect the incidence of
underemployment
(that is, people workingpart-time who want a full-time job) and the extent of
hidden unemployment
(that is, people who are not actively searching but who would rejoin theworkforce if the job market were stronger). In this paper, we examine theevolution of U.S. labor market slack and show that underemployment andhidden unemployment currently account for the bulk of the U.S. employmentgap. Next, using state-level data, we find strong statistical evidence that eachof these forms of labor market slack exerts significant downward pressure onnominal wages. Finally, we consider the monetary policy implications of theemployment gap in light of prescriptions from Taylor-style benchmark rules.
Regards,
Ted
http://www.ritholtz.com/blog/2015/04/labor-market-slack-and-monetary-policy/print/
