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Labor slack owing to gig economy may subdue US wages: Dallas Fed

April 17, 2019

Increasing numbers of contingent and gig-economy workers, combined with price competition resulting from online commerce, may be holding wages in the US down despite the record-low unemployment rate, according to analysis by John Duca, a VP in the research department at the Federal Reserve Bank of Dallas and the Danforth-Lewis professor of economics at Oberlin College.

One reason wage growth has remained unusually subdued could be that the headline unemployment rate has understated the amount of available labor, or labor slack, owing to gig employment.

Essentially, firms are able to hire contract or self-employed workers, who are not on their payrolls and not counted among the unemployed when not on the job. As a result, the headline measure of unemployment may understate labor slack, according to the analysis. This lowers the bargaining power of workers, which in turn keeps wages low.

These developments have coincided with major transformations in goods and labor markets that may affect aggregate wage and price behavior, according to the research. Online shopping as a share of retail sales has dramatically increased. Consumers find lower prices across geographically disparate sources, minimizing local shortages of goods and services and reducing monopoly power.

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