The Unassuming Economist

Source: Peterson Institute of International Economics

While a lot of research conducted from 2021 until March of 2022 suggests that labor markets in the US reached record high levels of tightness as job openings and quits rose, recent evidence collected by the Peterson Institute indicates the possibility of a potential cool down. The underlying argument driving this idea is that the sharp spike in nominal wages in 2021 could have been a result of some post-pandemic factors that shaped expectations of longer-run inflation which ultimately got dragged until 2022. So even though labor force participation rates in the US in April 2022 remained at 3.6%, 0.1% higher than the corresponding pre-pandemic level, the authors argue that this shortfall in employment is driven by a labor supply shortage as demand is robust.

The article also touches upon related issues like rising nominal wages that are beginning to plateau now and a somewhat alarming drop in real wages.

Read the full article to know more.