Wage Inflation and Informal Work
While U.S. unemployment has fallen to a very low rate, wage inflation has remained modest. Indeed, recent year-over-year wage growth values have fallen short of their predicted values by 0.5 to 1 percentage point, and recent acceleration in wage growth relative to declines in unemployment also has fallen short of historical norms. The authors examine one possible explanation for this wage-growth puzzle: The labor market is not as tight as the unemployment rate indicates. Specifically, they investigate the possibility that informal “gig” work embodies an economically significant amount of labor market slack that is not captured in the U-3 unemployment rate and other standard estimates of slack.
Using unique data from their Survey of Informal Work Participation—included in the Federal Reserve Bank of New York’s Survey of Consumer Expectations—the authors find indirect and direct evidence for this hypothesis.