Are wages rising slowly because of a pool of reserve labor?

I see this claim in my Twitter feed pretty often, but I don’t get how it is supposed to run.  Let’s try an analogy with the non-human animal kingdom.

Right now there are many cows in the world, and even more potential cows to be bred, or cows in low-value situations that could be moved around by boat or even helicopter, if need be.  Call it the “moo reserve army of the unemployed.”  If the market as a whole increased its demand for cows, the price of cows would go up.  It would not make sense to say “that happens only when all the cows are busy all the time and there are no extra cows or potential cows left.”  Very likely, there is an upward-sloping cost curve for mobilizing more cows.

To be sure, under a constant cost assumption, the price of cows would not go up, following an increase in demand.  The quantity of eligible, working cows would rise, stifling upward price pressure, and possibly this would take the form of a Malthusian equilibrium.  But note: in this situation you should expect the price of cows never to go up, as the cost structure is preventing that.

Alternatively, you might think that demand for cows and the cost structure for cow expansions interact in some very particular way.  If you pinned this down in just the right manner, you could model a situation where an increase in demand for cows won’t boost the price of cows now, but in broader situations the price of cows can sustainably rise.  Indeed that is possible, I just don’t see particular reason to believe that such a convoluted construction is doing most of the explanatory work for current labor markets.

I look at it this way: measured wages for male labor near the median haven’t gone up much in decades, and this is poorly understood (you may or may not think the same is true for actual real wages, and for women the story is somewhat more complicated).  So if measured wages for non-supervisors are not going up much now, that is hardly a huge shock.  The fact that we don’t understand it well doesn’t mean some remaining particular hypothesis — in this case about the size of reserve armies — has to be the true one.

Most cow parables, upon closer examination, collapse into structural explanations anyway.  And in labor markets, it is almost always both blades of the scissors that matter.

Addendum: You might try a matching model.  Imagine that potential workers are fully passive, stoned so to speak, but will accept credible good offers from well-capitalized employers.  The cost structure of the workers, or worker search, does not influence the outcome.  Over the course of the recovery, employers invest more in searching for the right workers because their profits are higher and they make a successively greater number of offers to well-suited workers, but at constant wages.  The number of employed keeps on rising, wages stay flat, but longer-run wages nonetheless may rise with productivity (and with enough bids for their labor, workers move out of passive strategies).  I’m not saying this is a good representation, only that it might capture the claimed mix of flat wages and a large reserve pool of labor, yet without forcing wages into a longer-run flatness.  It also suggests, by the way, that some measure of monopoly/high profits has been good for social welfare, as it has boosted employment.


I lean towards a labor force make-up issue.

If I already have a great employee I pay $20/hour, then I hire a not-so-great employee (perhaps was formerly long-term unemployed or "disabled" and way behind in skills) for $10/hour, I just dropped my average wage from $20/hour to $15/hour. This is the case even if my not-so-great employee was not interested in rejoining the labor force when I was offering $8/hour, but the employee decided to jump at $10/hour.

This is also probably also why French employees have been more productive per hour on average than American workers. France is (has been?) fine with the 10% least productive members of the labor force being unemployed.

You might be hiring a very highly skilled worker for $10 who was laid off in a major downsizing in 2001making $50 by got rehired through his network in 2002 at $40 but was the first cut when the work was outsourced to India in 2004, then hired at $30 as a contractor, technically at $60 but no benefits and health insurance was $30k due to PreX and medical copays for his wife, then the contract ends and he cares for his dying wife, then gets cut after finding a job for $30 In 2008, and after taking various jobs at low wages, retires, but is bored and tries to start a business and fails, ending up short of cash so he takes a job that's easy and he's over qualified for near home. The guy who hires him suspects he won't last long, or work hard, so lowbalsl the wage.

So, on the job he's clearly expert, but complains he's not paid enough to do extra, so the other workers know they might be paid less, without understanding the unstated contract between boss and worker: I'll work for cheap and offer my expertise as long as you make no demands on me.

Unlike the 60s, 70s, 80s, 90s when you simply quit if you didn't get a pay raise every year unless the job market was in the toilet, since 2000, all changing jobs meant high odds of lower pay, even if you worked with or replaced higher paid workers.

Because of illegal and legal immigration. Simple as that. It is intentional. You are being replaced and your country taken from you. What the left does not seem to understand is this can only end badly. Civil war? Perhaps.

Regarding illegal immigrants, if someone with a third-grade Mexican education who can barely speak English can do your job, you are not likely going to make an effective solider in the upcoming civil war.

Yup, it's well known that the most effective foot soldiers have PhD's and are atheists.

Offshoring of jobs (at least of the middle class wage variety) is a much more powerful driving of these effects than immigration. (And of course automation is the biggest driver of all)

I Look at it this way: measured wages for male labor near the median haven’t gone up much in decades, and this is poorly understood (you may or may not think the same is true for actual real wages---TC

I actually agree perhaps with the sentiments of the above sentence, but egads! The practice of macroeconomics is conducted in a thick fog, no?

There are disputes over methodologies, there are qualifications to the way data is measured, the way that arguments are framed and then there are those topics politely ignored.

The nice thing about macroeconomics is no one is ever wrong.

Perhaps empirical observations, sustained for decades, do not support orthodox macroeconomic theories

But remember, in macroeconomics, what is true in theory is more important than what is true in fact .

Say instead that the government is paying Farmers a fixed sum to keep their cows idle. Now as demand for milk rises, those farmers who had previously been keeping their cows in the shed will now be bringing them out and putting them to work. Until this subsidized reserve army of unemployed cows is exhausted increased demand for milk will not translate into increased price.

Aren't you then takling about two different markets. One is the market for 'pampered cows'. For whatever reason someone likes the idea of spending money to keep cows from having to work for the farmer. On the other side is a market for milk. The farmer will sell his cows to whatever is offering the better price at a particular moment.

So on day, for whatever reason, the people paying for pampered cows decide they don't want to pamper as many cows. At the same time more people want to drink milk. So milk demand goes up but supply is able to go up due to the decreased demand for pampered cows.

But there's no law that links these markets. Demand for pampered cows could go up at the same time milk demand also goes up. Imagine what happens with 'free range eggs' versus demand for all egg products.

I'd say more that the cows in reserve are there because the farmer doesn't want to kill them, for whatever reason. No pampering necessary. Now that more milk is required, the farmer brings them out to produce milk. Not a great analogy.

The 'cows in reserve' isn't working for me mentally.

Let's take something like a lot of oil wells someone owns. Say the owner has some wells going but he purposefully keeps some of them off even though they could profitably pump oil today. A rational explanation is that this guy is hedging against an increase in oil prices in the long run. Since every barrel he pumps today just brings the field one barrel closer to depletion, he is holding back some capacity.

Does 'reserve cows' make sense in that manner? Not really. Cows can't be 'switched off'. They have to be fed, cared for, and they get older whether or not you're milking them. If a cow lives 20 years keeping them unmilked for 2 years now doesn't buy you an extra 2 years of life and milk in the future.

A 'reserve army of the unemployed' seems to have the same issue. Leaving computer programmers unemployed for a decade doesn't mean you can quickly bring a bunch of people out of the cold to code your quantum computing startup once they get the entanglement problems sorted out and save big on salaries. Like milk, human capital spoils over time.

I'm not convinced that human capital "spoils". Skills unused generally are easy to start back up again: if you once rode a bike, swam or spoke a foreign language well you can get back up to speed easily even if you haven't used those skills in years. The problem is more a matter of new skills not learned. If someone hasn't used Excel or Word in twelve years, they'll be flummoxed when they confront the current Office suite of products today, the same way we all were when Microsoft made major changes to them back in 2007.

True but people do spoil. Mining is a bit unique because if you don't pump oil out of a field today, it will be there tomorrow. It was there thousands of years ago and will continue sitting there for thousands more if you don't act on it.

People get old, though. Almost all assets get old. You don't leave a car sitting in a garage for years waiting for Uber to raise the rates for deploying it. Even a sitting car starts to rot unless you spend time and money to counter that. Having people sit unused for long periods of time is really problematic economically and just doesn't make sense the way it would with an extraction based asset like oil or coal.

Re: People get old, though.

Of course. Which is why we have retirement since people do reach a point when they physically and mentally deteriorate. However if someone uses a skill at 30, moves on to something else for ten years, then at 40 has to use that skill again, they will get back up to speed pretty quickly assuming the skill itself is still more or less the same.

So much effort expended to avoid pointing out that as union membership declined in the U.S., wages did not rise.

It really is that simple, though a concerted effort over the last generation in the U.S. has managed to obscure such a fundamental truth, in part by using pure bullshit.

Unlike other places - think Germany - where unions continue to represent workers at a level that counterbalances the economic/political power that the owners/management possess.

(Of course, American unions are pretty much the equivalent of the American health care system - pretty much everywhere in the industrial world has better unions that represent worker interests in a way that ensures a better balancing of interests throughout the political system.)

But we are talking about the delta here. Have unions declined significantly in the last few years when labor demand has grown, and if labor demand is high why are we not seeing more unions forming? Is there more anti-union activity?

As a percent of wage & salaried US workers, union membership peaked in 1955 at ~32%. Now it is down to about 10%.

In 1955, US non-farm real compensation per hour index was 45 (where compensation in 2009=100), today it is 103. (see:

There were big increased in real total compensation index (81 in 1995 to 100 in 2007) during a time that union participation dropped from 15% to 12%.

We have had low rates of inflation: wage growth will be lower than when inflation was 4%.

Wages aren't rising? That's either fake news or somebody lied. Rising wages are a function of productivity, and productivity is a function of investment in productive capital. Didn't corporations invest their tax cuts in productive capital? Billions of tax cuts and billions of investment in productive capital will soon send wages up and up and up, anywhere between $4,000 and $9,000 annually per family as a result of the corporate tax cut. Donald Trump promised, Steven Mnuchin promised, the Republican majorities in the House and Senate promised, every right-leaning think tank and economist promised. If they promised, it must be true. They wouldn't lie. Cowen: "So if measured wages for non-supervisors are not going up much now, that is hardly a huge shock. The fact that we don’t understand it well doesn’t mean some remaining particular hypothesis — in this case about the size of reserve armies — has to be the true one." Oh, I get it, it's too complicated for us to understand.

I'm depressed at how long it took me to realize this was sarcasm and not just a standard Marginal Revolution comment.

Here is net domestic investment by business:

It is up from its recent trough of $402 billion in Q2 2016 to $556 billion in Q1 2018, although still not back to its all-time high of $619 billion in Q1 2015.

I think corporate tax reform's benefits is mainly not having companies try to do as many inefficient legal gymnastics to realize benefits of moving to lower-taxed countries rather than enhanced corporate investment. Helping companies stay HQ'ed in the US if they'd prefer that is both more efficient in general for the global economy, and also helps to maintain the corporate income tax base.

There's always a place that will offer lower tax rates, lower wages, lower human rights: the race to the bottom has no limits. U.S. companies have been using schemes to avoid U.S. tax that depend on transfer pricing, which in turn depends on having overseas operations. To expect them to give up that option just because the U.S. cuts the corporate tax rate to 21% is equivalent to expecting Al Capone to give up a life of crime just because the U.S. cuts the individual income tax rate. Indeed, both encourage lawlessness.

Look at steel industry. Union wages rose to the point investment in automation was the best path. Productivity of remaining workers increases but total employment falls. But everybody automates leading to higher fixed costs. Ie they can’t layoff payments on debt used to finance investments. Contributes to world wide glut in steel. Profits fall, no increase in wages. Unions irrelevant.

Increased competition from international producers constrains profits. Increasingly US workers are not more productive. A large segment of US labor force may be less productive than international average. They can only compete by accepting lower wages

Pro tip: If your analogy is more complicated than the thing it's trying to explain, go back to the original thing.

Thank you. I'm glad I'm not the only one who has no idea what that post was supposed to be about.

+1, the cow analogy seems to miss the whole point. Can't we just look at the Labor Force Participation rate :

It seems pretty trivial to observe that it fell drastically between 2008 and 2015 (far faster than raw demographics would indicate) and that there's probably some slack 2-4% in the current unemployment numbers.

The last job report stated that 600,000 people just entered the workforce. In one month. There's pretty good evidence of a reserve pool.

Alternatively, last month's large labor force increase could just be a case of poor seasonal adjustment in the month when students enter the labor force.

That's less of gain than you think: a large number of those people were college students taking summer jobs. Come September they'll drop out again.

A non culture war post, neat. Here’s an actual comment.

I think there are a few explanations, all plausible and not necessarily mutually exclusive.

A) the nagging woman effect on reservation wages; or, unemployment as a consumption substitute

As labor markets tighten it becomes less and less acceptable to not have a job. Social cost goes up (unemployment and jobs are choices for low wage workers), Inducing more workers back into the labor force. This steady increase offsets wage gains.

B) composition effect; or, the corollary to your ZMP worker hypothesis

Composition effects are masking the truth here. As we scrape the lower tiers of the barrel, we should be looking at total real wages earned in the economy. Idle assets are being put to work, but they are the equivalent of the crappier machines and thus drag the median and average down.

C) the very high marginal tax rates faced by lower income workers make them apathetic to wage increases. Why negotiate hard just to lose benefits? This causes weird inflection points. Why isn’t an economist looking at wages, delta in wages, etc AT THE cut offs. Bucket them and see if the wage gains are going to workers who already moved past the high tax thresholds. Segment it out !

Very true. Workers at lower end face very high marginal tax rate.

Job growth has modestly accelerated this year, still north of 200K per month in the 9th year of the jobs expansion, significantly higher than "organic" growth in the labor market. Remarkable.

Fun fact: 19.3 million new jobs since the Feb. 2010 jobs trough , 100% private sector.

Scott Sumner has already had the last word on this-never reason from a proce change. Unemployment could be trending lower due to high demand ( which would raise wahes) or it could be due to people lowering their wage expectations and pricing themselves into jobs (which would reduce wage inflation). Probably the latter is happyat the moment due to still relatively low monetary growth.

"or it could be due to people lowering their wage expectations and pricing themselves into jobs"

This could also be a case of organizations working to provide more work flexibility at the lower end. I've talked to some restaurant managers and they've said they've had a harder time the last few years filling slots for the wages they can offer and they've had to work around the deficiencies of more marginal employees than they would have in the past.

Perhaps modern cell phones, texting, etc has made it easier to quickly get employees in to cover partial shifts when someone doesn't show up. In the past, if your off shift employee wasn't at home to answer the phone, you had to do without. Which meant a gap in sales and a direct loss of revenue.Now, you can quickly reach your whole staff quickly and it's more likely that one of your employees is willing to come in for a few hours for some over time.

More basically, I think the labor supply since 1970 has been historically high in the United States, companies no longer know how to deal with limitations on labor supply. (I believe the only time labor supply was restricted was the 1996 - 2000 high flying Dot Com days.) So they are unable to deal with this reality and the decline of family formation is now in the 'Japan' circular function. In which low labor supply causes slowdowns in family formation which decreases future labor supply. (Note even if Japan birth rate is increasing the number of babies is still on a downward trend.)

Otherwise, the movement to services are harder to increase productivity.

One factor holding down labor turnover is the fear of future lay-offs.
Typically lay-offs are based largely on seniority -- last in, first out. So if you change jobs you go back to being a very junior employee and the first one to be laid off in hard times. So recent experience with sever unemployment make people reluctant to change jobs compared to the historic experience. In turn, this dampens wage pressures.

Re: Typically lay-offs are based largely on seniority

That's still true at unionized jobs, but not so much everywhere else. Often in fact it the older workers who let go these days since they can replaced with cheaper younger workers.

The other unusual factor this cycle was the large number of firms that decided to get out of certain lines of business so they just fired everyone in that department. This was especially true in the financial sectors.

In the old days of the 4 year cycle, most unemployed expected to soon return to their old job with all the benefits of seniority retained. That is why the labor force is defined as people actively looking for work. This . avoided counting the temporary unemployed auto worker who would not be looking for a new job.

We see this quite a bit in the real estate market.

There are a lot of people who would like to sell their houses, let's say 100 people would like to sell per year. But when the market is low then the only people who are selling are those who must sell their houses--everyone else pulls their house off the market, to wait for a higher price.

As time goes by, the number of people "waiting for a higher price" will build up substantially.

When the market goes back up, it does so based on the then-limited supply. But as soon as the surge is big enough, the "wait for an uptick" people will start dumping their houses back on the market.

This creates a surge in demand, which temporarily stagnates prices until the market clears and gets back to normal.

People are not rational and a lot of them can be in "hold-out" mode. Perhaps they've been waiting until wages clear to $20/hour. Now a lot of those people are transitioning into the wage economy.

There's also easier access to the international pool of labour, whether by a) the ability of a corporation to more easily threaten to move production to a jurisdiction with cheaper working conditions, and b) via the internet. (Somehow this seems distinct from all forms of access of the international labour reserve to various segments of the US labour market.)

Both of these would tend to act in the direction of suppressing wages in high income countries, and explicitly due to the existence of a reserve pool of labour, without requiring that any reserve pool of labour were particularly relevant domestically.

This could also explain reduced union membership, which would have some multiplying effect in addition to the original cause(s) (under the assumption that explicit legal and/or extra-judicial suppression of worker collective representation, as compared to shareholder collective representation, is in balance relatively stable through the period).

In fact, that's basically what the unions say. The fact of increased exposure to competition with cheaper working conditions abroad makes it difficult to sustain good working conditions here -- this is among the reasons that the TPP had included requirements for working conditions and labour rights to be improved substantially in Vietnam.

Corporations are not shy to admit this either. For example, when relocating production facilities from a high income country to a low income country, they commonly cite the ability to produce outputs at lower cost as a reason (without generally mentioning anything about working conditions of workers, unless working conditions in the production facility are demonstrably much better than what prevails in the foreign country).

I think this is exactly right. The relevant 'reserve army' is in China, and Vietnam, and Ethiopia, and Bangladesh. The ability to mobilize that army has been created by shipping containers and the Internet, and the effects are slowly becoming apparent.

Yes. This is what Autor, Dorn, and Hanson show in their paper "The China Shock" (

It's weird how libertarian "free traders" worked to create the intellectual case for increased capital mobility and the free flow of products (both inputs and finished), but seemingly forget what they helped create when trying to "just ask questions".

The increase in labor competition from an increase in supply was a key feature of "globalization". It was one of the primary reasons capital owners and their enablers fought so hard to create the current international trade system.

The Internet also allows for high-wage jobs such as computer programming to be done internationally. Even in the early 2000's, I worked at a company that was outsourcing CAD drawing to Russians who did the job overnight. Plenty of highly-skilled knowledge workers in eastern Europe, Russia, and India willing to work remotely. No immigration hassle to bring them to the US, no tariffs.

There is also the reserve army of machines and AI, which is steadily encroaching on traditional white collar professions which rely on data analysis and logic. This has the effect of "deskilling" these positions and sucking the high value work from them.

"There's also easier access to the international pool of labour,..."

Good point.

Over the course of the recovery, employers invest more in searching for the right workers because their profits are higher and they make a successively greater number of offers to well-suited workers, but at constant wages.

So I'm thinking of that John Ham Movie Million Dollar Arm. Here you had Ham go to India and screen thousands of people to find a few guys who could pitch well enough to become professional baseball players.

So here you have your theory in action. Presumably the pitchers he recruits won't get paid much more than normal professional pitchers, maybe even a bit below average so wages won't go up for pitchers. But search costs obviously do go up a lot because there's a demand for pitchers and it's harder to find them by just scouting high school and college baseball teams...but baseball not being huge in India means the few with 'super arms' are somewhat indifferent to the market for baseball players. Hmmmm

So the problem clearly is the market for pitchers is not growing since new professional teams are not created very often. Recruiters are trying only to replace retiring pitchers or possibly find new pitchers better than current pitchers. Even so this seems like a one trick pony. As more recruiters try to find unknown superstar pitchers in developing nations that don't play baseball, you would think salary negotiations would start to kick in...esp. if professional baseball was getting bigger with more teams being added and more demand for pitchers?

A pitcher is very unique among professional baseball players. But for more normal jobs is the search function that involved? If a college needs an econ prof to teach a few more intro to micro courses is searching for the 'right match' really all that? More janitors for a new wing? Is someone doing payroll accounting in Fed Ex really so uniquely matched he couldn't take a job in UPS?

Both sides of the scissors yes, so perhaps "vast measure of reserve" workers is just an imprecise way of saying the supply shifted.

"measured wages for male labor near the median haven’t gone up much in decades, and this is poorly understood (you may or may not think the same is true for actual real wages"

I seem to recall reading and contemplating that year-to-year nominal price changes and real price changes are meaningful but over long spans or decades it is a different matter. That is, if a median male earns 2% more from one year to the very next it will feel like 2% but repeat that over 10 years and it won't feel like 21.9%.

I suspect it will feel like more than 21.9%; hence complacency and small increases in wages.

Anecdote: I am looking at the Canadian Tire flyer and I think the median male looks at it too. There is a high performance make and model that would not have been listed two decades ago because Tire, despite it's name, is not a specialty store: it's a housewares store. I claim that this "luxury" product would not have be stocked at Tire 20 years ago. The nominal price seems lower than it used to be. The price one year ago is meaningful. The price 20 years ago is not because you had to go somewhere else to get it and it would have been inconvenient and you would have waited forever for it to move from the warehouse.

Factor price equalization across borders

Automation of many mid to lower skilled workers

Many new entrants are lower MPL, their skills are rusty or they were unemployed for a reason, they weren’t productive

Automation during downturn or leaner production methods make new workers interchangeable with less bargaining power

Something else

I guess there's the simple story for workers, and a "more complicated" story for women, huh TC? I am unable to parse that. It suggests that women must make up only a small fraction of all workers - since otherwise the story for all workers would also be "more complicated". I do have a constructive criticism: don't use cow ←→ worker analogies, they don't work. (plus, you know those women who are "more complicated"? - some of them might just be offended at some unbelievably disconnected professor referring to them as cows.)

One problem I see is that people only ever want to look at median or mean wages trends but not a lot of other data points get studied too carefully. Why not look at how the 25th percentile or 75th percentile wage track over time? Or given the 25-55 year old population cohort, how does the income of the 50th percentile change over time including the unemployed? All of these would provide useful insight into typical wage trends without getting into the winner-take-all aspects of what the top 1% are doing.

I've read this post several times and I cannot figure out what it is trying to convey. Why complicate a simple question with talks

So let me provide a concrete example that is not a half-baked cow analogy (?!?!?).

A couple years ago my employer laid off a bunch of people (other employers in the industry too). Due to wage stickiness, wages didn't *drop*, but they did stagnate. 2% raises were the norm, which is about as low as you can get without having employee riots (side note; it's clear that HR departments try to tread this line).

Last year the industry recovered and demand picked up significantly. We all hoped that meant big raises as employers would poach employees. You know, supply and demand. Fixed supply, increasing demand leads to higher prices.

But the supply was not fixed. There were all those laid off employees who, actually, are quite bright and very qualified. So when demand increased, that demand was filled by the unemployed folks who had been laid off.

This seems like such a simple concept. Supply and demand. I don't see the parallel in your cow example.

Exactly. Couldn't have put this better. I think TC is thinking only about completely flat supply curves or very steep supply curves. In reality the supply curve is (probably) initially flat and later rises steeply. In your example, it is easy to expand without raising wages as long as there are high quality people who don't have jobs; but once we exhaust that pool, the only way to expand is to raise wages.

I think the workforce make-up from the first comment is a good explanation. But here's another: What if discouraged workers didn't leave the workforce because wages were too low but because there weren't jobs for them?

Obviously there were jobs somewhere and in some field at some wage for them. But while lots of people are adaptable, lots are lazy sticky in their preferences. If the grocery store lays you off, and there aren't any grocery store jobs within a 5 mile radius, you stay home.

Later, when the economy picks back up, the grocery store has more business, hires more people, and you get your job back.

Re: 2% raises were the norm, which is about as low as you can get without having employee riots

No, in extreme instances (as during the Great Recession) raises will dry up entirely, or almost so. I worked for a noted Wall Street firm 2006-2014. In 2007 raisers were still generous to a fault. During the bad years, beginning with FYE 2009, almost no one got raises until 2011.

I was going to say much the same thing in this way: This job market phenomenon differs from the cow model in (1) the suplply of workers is relatively fixed = the supply curve doesn't change much over time, and (2) wages are very sticky. In re the later point, the Economist noted that at the financial crisis, the UK inflated the currency about 5-6%. That caused real wages to drop 5-6% (nominal wages stayed the same), but the unemployment rate peaked well lower than it did in the US (where there was low inflation). So during a recession, wages do not change to make supply and demand equal, they are fixed at the high-water-mark before the crash.

The difference between the supply at the fixed price and the demand at the fixed price is the "reserve army". As the economy grows, demand increases, and more workers are hired -- but still, at the fixed price.

Only once the reserve army vanishes, when supply equals demand, will increased demand cause wages to rise.

There is the interesting question of who composes the reserve army, given that U-3 is so low. My guesses are (1) U-6 is unusually high given the U-3 rate, so it's likely that the labor supply is higher than the U-3 implies. (2) Moving a person into position to look for and take work is not instantaneous, so there's a lag as people rearrange their lives to go back to work. ("equilibrium" analyses always assume that the system attains equilibrium faster than other changes in the system, and that's often not true.)

After 2 or 3 years the really sharp, well qualified unemployed will find different jobs so that the remaining unemployed are really low quality workers. If this were a normal cycle with reemployment happening fairly rapidly this would not be a problem. But in this very long and weak cycle it has become an issue.

Employers fear a recession, do not want to get caught with high wage workers.

A lot if employees fear a recession-- or a major round of outsourcing-- and they don't want to be the employee whose high salary stands out like a sore thumb as tempting low hanging fruit when cuts are made.

Model frictional costs to transitiong between emeployed and unemployed including benefits. You are missing a big point here.

I'm surprised to not see any discussion of the minimum wage and sticky wages as a possible mechanism. If the marginal productivity of an additional unit of labor for a business moves from below the minimum/current sticky to above it then they will higher one more person, but since there are many unemployed people they will just do this at the minimum/current sticky wage. With decreasing returns to labor for individual businesses, we can expect the amount of unemployed people to need to shrink to NAIRU before we see wage increases.

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