Drivers of Wage and Employment Growth in Recent Years: A Supply and Demand Decomposition

2026

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This paper provides a crucial decomposition of recent labor market dynamics, distinguishing between supply and demand forces to inform economic forecasting and policy.

* Employs a structural vector autoregression (VAR) methodology with sign restrictions to disentangle U.S. employment and wage growth into supply and demand components.
* Analyzes the period from 2022 through 2025, identifying distinct drivers for goods-producing versus service sectors and linking shocks to monetary policy and immigration.
* Offers insights into the asymmetric post-pandemic labor market rebalancing and its implications for monetary policy calibration.

Tags: labor market, supply and demand, wage growth, employment, VAR

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