Labor Supply Limit holding
I have posted this graph before. Here is updated data.
The graph plots labor share (left) against the unemployment rate (bottom) since 1948 to 2ndQ 2016. (data at FRED)
The data points suggest a labor supply limit shown by the down-sloping red line. As labor share drops, unemployment tends to bottom out at higher levels.
The last 3 quarters are circled. Recent data is rising up the supply limit line.
If the limit holds, further declines in quarterly unemployment will call for more labor share.
“further declines in quarterly unemployment will call for more labor share”
Is this not consistent with Dean Baker saying that if firms really want to hire more people they are going to have to offer better wages?
It is not a chicken and egg discussion. It is a system with internal feedback.
So supply curves slope upwards. Who could have guessed?