Piecing Together the U.S. Wage Puzzle

Economists have been puzzled by the counterintuitive trend over the past several years in which the U.S. labor market has tightened but wage growth has been mediocre, at best. This paper first looks at the unemployment rate as a measure of labor market slack and finds that is not used this cycle. Finally, the risks are reviewed regarding the possibility that policymakers could make a misstep if they put too much stock into the idea of pent-up wage deflation.