Cross-state Evidence on the Relationship between Unemployment and Wage Growth
Daniel Aaronson, Daniel G. Sullivan
The current economic expansion has delivered the lowest unemployment rates in 30 years. Yet wage growth has remained relatively contained. This failure of wages to accelerate more rapidly suggests to some a shift, or even a complete breakdown, in the historical relationship between unemployment and wage growth. However, looking across the years, the link between unemployment and wage growth has always been relatively loose. Previous periods have seen wage growth depart just as far from expectations, only to return to the historical pattern. This historical looseness in the relationship between unemployment and wage growth implies that it might take many years of timeseries data to conclusively identify a significant change.
