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More On Labor Market Slack

Macroblog argues:

macroblog: More On Labor Market Slack: But even excepting the legitimacy of identifying the cyclical part of a time-series representation with slack, there is the inevitable ambiguity in exactly how that representation ought to be constructed. I'm not sure exactly how STAMP works, but let me try another cycle/trend decomposition, based on a statistical tool known as the "Hodrick-Prescott filter"...

And produces a graph to argue that today's labor force participation rate is actually higher than the "trend" value that we would associate with full employment:

Here is a graph of the actual time-series of the total labor-force participation rate (men and women, all ages) along with the secular trend estimated by the Hodrick-Prescott filter. The analog to Max's measure of slack in this picture would be the difference between the trend line and the actual series.... [T]his particular time-series calculation suggests that the current overall labor force participation rate is actually somewhat above its estimated trend...

Look at the what the figure tells us about the end of 1982. It tells us that at the end of 1982--in the middle of the deepest recession of the post-WWII period--after three years during which labor force participation had hardly grown at all after growing by 0.4% per year throughout the 1970s--labor force participation was not depressed below its long-term trend.

If macroblog is going to say that the slowdown in growth in labor force participation between 1979 and 1982 is not a sign of a slack labor market but of "efficient changes in labor force participation" due to factors analogous to "summer vacations... winter holidays... every weekend" that cause fluctuations in labor force participation that we "would never think of calling... 'gaps'--well, then, I wish it luck out there in the Gamma Quadrant.

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