TY - JOUR AU - Medoff,James L. AU - Abraham,Katharine G. TI - Unemployment, Unsatisfied Demand for Labor, and Compensation Growth in the United States, 1956-1980 JF - National Bureau of Economic Research Working Paper Series VL - No. 781 PY - 1981 Y2 - October 1981 UR - http://www.nber.org/papers/w0781 L1 - http://www.nber.org/papers/w0781.pdf N1 - Author contact info: James L.. Medoff Department of Economics Harvard University Littauer Center 115 Cambridge, MA 02138 Tel: 617/495-4209 E-Mail: jmedoff@harvard.edu Katharine G. Abraham Joint Program in Survey Methodology 1218 LeFrak Hall University of Maryland College Park, MD 20742 Tel: 301/405-1004 Fax: 301/314-7912 E-Mail: kabraham@survey.umd.edu M1 - published as Medoff, James L. and Katharine G. Abraham. "Unemployment, Unsatisfied Demand for Labor, and Compensation Growth, 1956-80." Workers, Jobs, and Inflation, ed. Martin N. Baily, pp. 49-88. Washington, D.C.: Brookings Institution, 1982. AB - This paper presents two key facts which call into question the value of unemployment rates as barometers of labor market tightness. First, while both unemployment rates and unsatisfied labor demand proxies perform reasonably well on their own in compensation growth equations, in models which include both, only the unsatisfied demand variable appears to matter. Second, the past decade's outward shifts in Phillips plots can to a substantial degree be tied to outward shifts in plots pairing the relevant unemployment rate and unsatisfied demand proxies. The paper also provides results which indicate that Phillips relationships which are defined in terms of unsatisfied demand variables appear to be somewhat more stable than those using unemployment rates. Taken together, our findings have a clear message for those concerned with macroeconomic theory and policy: labor market pressure on wages can be more reliably assessed by looking at measures of unsatisfied labor demand than by looking at the unemployment rates on which most earlier analyses have focused. ER -