The latest developments in the labour market are often central to monetary policy decisions. We outline a framework for mapping labour market indicators to near-term employment and pay growth, drawing on established insights from the ‘nowcasting’ literature. The key benefits of our approach are: the ability to map a range of ‘soft’ and ‘hard’ indicators of different frequencies to quarterly official data; the empirical determination of how much weight to place on each indicator; and the ability to shift those weights flexibly as more data become available. This framework beats simple benchmark models in our labour market application.
Everyone likes a bonus – be it a bonus in pay, or a bonus episode for your favourite TV show. Everyone, that is, except statisticians. Bonuses are hard to define and measure and are often excluded from data on pay. But bonuses could be really important to understand labour market tightness – a topic of much interest at the moment. This blog takes a quick walk through some pay measures, highlighting the role of bonuses, and exploring what has happened to bonuses before, during and since the pandemic.
Arthur Turrell, Bradley Speigner, James Thurgood, Jyldyz Djumalieva and David Copple
Recently, economists have been discussing, on the one hand, how artificial intelligence (AI) powered by machine learning might increase unemployment, and, on the other, how AI might create new jobs. Either way, the future of work is set to change. We show in recent research how unsupervised machine learning, driven by data, can capture changes in the type of work demanded.
Firms are increasingly investing in automation, substituting capital for labour, as workers become more scarce and costly. We are seeing multiple examples, from automation in food processing to increasingly-common self-service tills. This push for productivity growth is one of the key themes from our meetings with businesses in the past year, which we think suggests a reversal of a decade-long trend.
The Phillips Curve (PC) is an old concept in economics, but it is a durable one. The simple idea behind the PC is that the lower the rate of unemployment, the faster wages will grow. If the PC has changed over time, that can have important implications for monetary policymakers. Analysis of regional UK data suggests that the PC has shifted down over time, but has not necessarily become flatter. Higher levels of educational attainment are likely to have contributed to this shift.
Many things have being trending down globally over the recent decades: real interest rates, productivity, world trade, you name it! And it’s generally acknowledged that these falls are problematic for policymakers. However, there is one downward trend which has been welcomed with open arms…
The dramatic fall in the price of oil has had a marked effect on headline inflation across the world. In contrast, measures of core inflation (ex. food & energy) have been more stable suggesting, that once the base effects from oil drop out, headline rates of inflation should bounce back. However, while inflation rates around the world will mechanically pick up in the near-term, it is not clear that global labour markets are strong enough to drive inflation fully back to target.
Is falling unemployment masking a broader deterioration in UK labour market performance? The ease with which a typical job seeker lands a job is a crucial indicator of the health of the labour market, which cannot be fully inferred from just a casual glance at the headline unemployment rate. It is true that unemployment has declined quite rapidly recently. But this is because job openings have been unusually abundant while the labour market’s capacity to match individual workers to available jobs quickly has actually worsened. This capacity is referred to as matching efficiency, and it started falling in the UK even before the 2008 recession.
One of the puzzles arising from the economic recovery has been the difficulty of squaring sharp falls in unemployment with – at least until recently – only slow growth in average earnings. The common interpretation is that there’s still more slack than “normal” in the labour market. However, in this post, we argue that there has been a more marked labour market tightening so that there is now slightly less slack than “normal”. That suggests that earnings growth has been suppressed by factors other than labour market slack – leaving a risk that wage inflation will pick up sharply if and when those factors wash out.