AP/Jose Luis Magana
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- Federal Reserve officials have long been baffled by the absence of wage growth for median US workers despite a long-standing economic recovery that has sharply lowered unemployment to 3.9%.
- A new paper offers a convincing hypothesis for the Fed’s conundrum: underemployment and weak bargaining power for workers is more rampant than the official data suggest.
- “There’s more labor slack then you think and therefore it’s an error for the Fed to raise rates,” David Blanchflower, a former Bank of England member and the paper’s co-author, told Business Insider.
Federal Reserve Chairman Jerome Powell has often expressed surprise at the lack of wage growth for US workers despite a historically low jobless rate below 4%.
“I certainly would have expected wages to react more to the very significant reduction in unemployment that we’ve had,” Powell told reporters during his last press conference, held after the Federal Open Market Committee raised interest rates again in June. “So it’s a bit of a puzzle.”See the rest of the story at Business Insider
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