March 7, 2015
WRONG JACKET:
Nobody Knows Nairu, and That's a Problem for the Fed (JON HILSENRATH, 3/06/15, WSJ)
On average, analysts said the "nonaccelerating inflation rate of unemployment," also known as Nairu, was 5.1%. In all 69 analysts were surveyed, though all of them didn't answer every question.Nairu is a theoretical threshold at which the economy is in balance and inflation pressures are neither rising nor falling. A jobless rate below this chokepoint in theory would create inflation pressure. The unemployment rate was 5.7% in January, still a good distance above the average 5.1% estimate.Federal Reserve officials are paying close attention to these estimates now because the jobless rate is falling rapidly, down from 6.6% a year ago. Fed officials estimate the unemployment rate's long-run range-which is akin to a Nairu-is between 5.2% and 5.5%. Officials will update their projections in March. Some of them are thinking about revising their estimates down, because they see unemployment falling without much evidence of inflation pressure building.
One of the things that our long social experiment in making jobs for women and minorities demonstrated is that virtually everyone is employable. During this exercise in purely social employment we drove the participation rates to historically extreme levels. But this was just a function of white men not replacing white men in the workplace. We added make work jobs so we could keep our own. As decision-making of this kind returns to a meritocratic and productivity/profitability based rationale, employment participation will trend back towards normal levels. As automation, information technology, robots, etc. come on line, the employment participation level should trend well below historic levels.
At the same time, the workplace faces two other historic shifts, away from unionization and towards defined contribution benefits, away from defined benefit.
And, of course, this is all taking place against a setting of increasingly globalized trade.
Given these factors, it's hard to see how any significant wage pressure can come into being for the forseeable future. If you want more money for the job that's being offered, someone else won't. If both of you do, there's a foreigner (here and/or there) who won't. If all four of you do, there's a technology that won't. The only thing that will sustain employment levels and wages at all is social policy, not any economic force.
Posted by Orrin Judd at March 7, 2015 10:34 AM
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