What exactly is 'slack'?

Episode Summary

Executive Summary: The episode examines why traditional jobs data can miss the real state of the labor market. Guests debate “slack,” NERU, wage growth, and how employer concentration, unions, hours volatility, globalization, and non-compete clauses can suppress pay even in a tight labor market. The conversation ends by arguing for better Jobs Day metrics that capture quality, distribution, and fairness—not just job counts.

Main Topics: Defining labor market slack (Priority: 5/5): Guests explain slack as unused labor capacity, but stress there is no single reliable measure. They discuss unemployment, prime-age employment-to-population ratios, and participation as imperfect proxies. Why wages don’t rise as expected (Priority: 5/5): The panel wrestles with the puzzle of low wage growth despite a tight labor market, suggesting productivity, frictions, employer power, and labor market structure all matter. Employer concentration and wage suppression (Priority: 5/5): Joanna Marinescu outlines how concentrated labor markets let employers pay less, using examples like dominant firms in barista jobs and showing higher concentration correlates with lower wages. Union power, globalization, and bargaining (Priority: 4/5): Mark Blythe and Joanna discuss how unions can protect wage gains, while global supply chains and offshoring weaken labor’s leverage and discipline wage growth. Hours, scheduling, and job quality (Priority: 4/5): The discussion expands beyond pay to predictable hours, benefits, bonuses, and non-compete clauses, arguing that job quality and schedule stability are central forms of slack. Political and moral backlash to economic insecurity (Priority: 4/5): The guests connect stagnating living standards, weakened intergenerational mobility, and loss of democratic control to nationalism, Brexit, Trump, and distrust of experts. Rethinking Jobs Day metrics (Priority: 5/5): The panel proposes replacing headline payroll counts with richer measures such as real wage growth by subgroup, prime-age employment ratios, and inequality across the distribution.

Key Arguments: Slack is a useful but imprecise concept for unused labor capacity; unemployment alone does not capture it, and prime-age employment-to-population is often a better proxy. There is no observable ‘natural’ employment rate that can be precisely measured, making NERU and similar constructs unstable and revision-prone. Wage growth can remain muted even in a high-pressure labor market because workers face friction, limited mobility, and weak bargaining power. Employer concentration depresses wages because a few firms dominate local labor markets and do not need to compete aggressively for workers. Workers often cannot freely switch jobs because of commuting, caregiving, skill mismatch, geography, and schedule constraints; higher wages may attract only limited additional labor. Unionized sectors and countries tend to deliver stronger wage growth and better sharing of productivity gains. Globalization increases the effective labor supply and can restrain pay by making offshoring or relocation credible threats. Non-compete clauses, benefit cuts, bonuses, and hour volatility are additional mechanisms employers use to manage labor costs without raising base wages. The labor market debate should shift from simply asking whether people have jobs to asking what kind of jobs they have, how predictable they are, and whether pay keeps up with inflation. Public frustration and populist politics are partly driven by stagnating absolute living standards and declining confidence that children will do better than their parents.

Data Points: New jobs added in December: 312,000 - Top-line Jobs Day figure discussed at the start of the episode Year-over-year wage growth: 3.2% - Wage growth for all employees in December Prior wage growth range: 2.5%–2.7% - Wage growth two years earlier when listeners wondered why pay was not rising Prime-age working-age range: 25 to 54 - Used as the preferred age band for measuring employment-to-population slack Estimated share of American employment contracts with non-compete clauses: over 20% - Cited as a mechanism for holding down wages Global liquidity expansion since the financial crisis: about 17 trillion or more dollars, yen, and euros - Mentioned in the discussion of why inflation has remained subdued Absolute weekly earnings increase example: $50 per week over an entire year - Used to illustrate how nominal wage gains can look larger than real gains Broad recent wage comparison: 3.2% in December versus 2.5%–2.7% two years ago - Shows improvement but still below previous expansion highs Top-line Jobs Day jobs count referenced: 312,000 new jobs - Presented as far above normal and forecasts

Pivotal Quotes: "I think it's a bit like dark matter. I think you invoke it when the normal stuff doesn't work." — Mark Blythe: Describing slack as an explanatory placeholder for labor-market puzzles "My recent research shows that in many cases, employers are able to pay people less than they're worth." — Joanna Marinescu: Explaining how labor market concentration and worker frictions suppress wages "If you're complaining about not being able to find workers and you're not raising wages, then you're just whining." — Brendan Greeley citing Neil Kashkari: Used to challenge employers who say labor is scarce but do not raise pay

Implications: Listeners should be skeptical of headline payroll numbers alone. Labor-market health now needs measures of job quality, bargaining power, hours, and distribution. Policy debates will increasingly center on inequality, mobility, and fairness—not just unemployment.