Question

The official unemployment rate in this country has been below the natural rate of unemployment (4.5%)...

The official unemployment rate in this country has been below the natural rate of unemployment (4.5%) for eleven months, which would ordinarily put pressure on wages and create inflation. Yet, the average earnings for nonfarm private employees has only increased by 2.6%, which is marginally better than the inflation rate of 2.13% in the same year. Identify and analyze factors that may explain why high employment rates have not resulted in a very tight labor market.

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High employment rate in an economy generally leads to very tight labor markets. However, there are instances when high employment rates might not result in a very tight labor markets. This happens in the case of high immigration of the workers from other countries in the country. This can also happen in case of mismatch of the skills of the workers with the required skill set in the workplace. Thus, all the factors mentioned above will not result in very tight labor market conditions in the labor market.

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