Cyclical Signals from the Labor Market

32 Pages Posted: 21 Oct 2021

See all articles by Tino Berger

Tino Berger

University of Goettingen (Göttingen) - Department of Economics

Paul David Boll

University of Warwick

James Morley

University of Sydney - School of Economics

Benjamin Wong

Monash University - Department of Econometrics & Business Statistics

Date Written: October 21, 2021

Abstract

We consider which labor market variables are the most informative for estimating and now-casting the U.S. output gap using a multivariate trend-cycle decomposition. Although the unemployment rate clearly contains important cyclical information, it also appears to reflect more persistent movements related to labor force participation that could distort inferences about the output gap. Instead, we show that the alternative U-2 unemployment rate (job losers as a percentage of the labor force) provides a more purely cyclical indicator of labor market conditions. To a lesser extent, but consistent with a link of the output gap to real labor costs in a New Keynesian setting, we also find that average hourly earnings are informative about the output gap.

Keywords: Nowcasting, output gap, Covid-19, U-2 unemployment rate, average hourly earnings

JEL Classification: C53, E24, E32

Suggested Citation

Berger, Tino and Boll, Paul David and Morley, James and Wong, Benjamin, Cyclical Signals from the Labor Market (October 21, 2021). CAMA Working Paper No. 91/2021, Available at SSRN: https://ssrn.com/abstract=3946709 or http://dx.doi.org/10.2139/ssrn.3946709

Tino Berger

University of Goettingen (Göttingen) - Department of Economics ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

Paul David Boll

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

James Morley

University of Sydney - School of Economics ( email )

Rm 607 Social Sciences Building
The University of Sydney
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://https://sites.google.com/site/jamescmorley/

Benjamin Wong (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia

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