Recent Evidence on the Relationship Between Unemployment and Wage Growth
The current expansion has delivered the lowest unemployment rates in decades, yet nominal
wage growth has remained relatively contained. This suggests to some a shift in the historical
relationship between unemployment and wage growth. We look across the states for more timely
evidence of a change in this relationship. We find some evidence that the elasticity of real wage
growth with respect to unemployment has fallen recently, a result that is not due to a compositional
shift toward college-educated workers. However, evidence of a weakened relationship is itself
weak, depending on inherently arbitrary decisions about when a shift may have occurred. In
addition, we find that levels of real wage growth associated with high, medium, and low
unemployment have remained relatively constant.
