By far the strangest and most interesting news of the day was the unexpected fall in Unit Labor Costs (-0.2% against an expected +0.2%). Since early 2014, ULC has been positively correlated with broad unemployment (U6, or unemployment, part-time for economic reasons and marginally attached to the labor force).
Normally (as during 2000-2014) labor costs are negatively correlated with unemployment. Perhaps the Phillips Curve has reversed direction?
There are any number of possible explanations for this, including
- a very low labor force participation rate that reflects a reserve of prospective workers;
- postponed retirement
- a cultural change in a labor force that is more concerned with job security than pay gains; and
- technological changes.
Whatever the reasons, the fall in labor costs is good for earnings, and helps explain the subdued wage costs we observed in the GDP profit tables: