Former Fed Chair Janet Yellen raised the profile of wage growth as a monetary indicator when she put a numerical range of 3%-4% on wage growth in her dashboard of economic indicators and with today’s employment report, average hourly earnings growth has moved into this range for the first time since April 2009. A number of commentators have blamed sluggish wage growth for subdued growth in aggregate demand and sub-par real GDP growth in this recovery. We disagree that modest wage growth has been the factor holding back the recovery. This note draws on work presented in yesterday’s research note Economics Matters, Sluggish Wage Growth Has Been Good for Growth, which in turn draws on our earlier work on profit margins, capital spending and productivity.
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