what is the relation between labor and market development
Answers
The U.S. labor market has substantially recovered from the effects of the recent recession. The unemployment rate has dropped from 10 percent at the end of 2009 to 5.5 percent today, a level Federal Open Market Committee participants consider close to its long-run value.1 Although the current economic expansion widely improved labor market conditions, there is some debate about whether these improvements lead to higher wages.2 In this essay, we review the relationship between wage growth and unemployment.
In a very influential and still much-debated 1958 article, A.W. Phillips argued that when unemployment is low, nominal wages tend to increase at a fast pace, while the opposite is true when unemployment is high. This relationship (and its variants) is called "the Phillips curve." While this relationship should be interpreted with caution, its rationale is rooted in a very simple economic principle: When the labor market is tight—that is, when demand for labor is high compared with the supply of labor—wages tend to increase. 3