The Lack of Wage Growth and the Falling NAIRU

39 Pages Posted: 24 Apr 2018

See all articles by David N.F. Bell

David N.F. Bell

University of Stirling - Department of Economics; IZA Institute of Labor Economics

David G. Blanchflower

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER); University of Stirling - Department of Economics

Date Written: April 2018

Abstract

There remains a puzzle around the world over why wage growth is so benign given the unemployment rate has returned to pre-recession levels. It is our contention that a considerable part of the explanation is the rise in underemployment which rose in the Great Recession but has not returned to pre-recession levels even though the unemployment rate has. Involuntary part-time employment rose in every advanced country and remains elevated in many in 2018.In the UK we construct the Bell/Blanchflower underemployment index based on reports of whether workers, including full-timers and those who want to be part-time, who say they want to increase or decrease their hours at the going wage rate. If they want to change their hours they report by how many. Prior to 2008 our underemployment rate was below the unemployment rate. Over the period 2001-2017 we find little change in the number of hours of workers who want fewer hours, but a big rise in the numbers wanting more hours. Underemployment reduces wage pressure.We also provide evidence that the UK Phillips Curve has flattened and conclude that the UK NAIRU has shifted down. The underemployment rate likely would need to fall below 3%, compared to its current rate of 4.9% before wage growth is likely to reach pre-recession levels. The UK is a long way from full-employment.

Suggested Citation

Bell, David N.F. and Blanchflower, David G., The Lack of Wage Growth and the Falling NAIRU (April 2018). NBER Working Paper No. w24502. Available at SSRN: https://ssrn.com/abstract=3163251

David N.F. Bell (Contact Author)

University of Stirling - Department of Economics ( email )

Stirling, Scotland FK9 4LA
United Kingdom
+44 1786 467 486 (Phone)
+44 1786 467 469 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

David G. Blanchflower

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
603-646-2536 (Phone)
603-646-2122 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Stirling - Department of Economics ( email )

Stirling, FK9 4LA
United Kingdom

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