'The Impact of Unemployment Duration on Compensation Growth'

Why has the Phillips curve "generally underpredicted compensation growth since 2009"?:

The Long and Short of It: The Impact of Unemployment Duration on Compensation Growth, by M. Henry Linder, Richard Peach, and Robert Rich:  How tight is the labor market? The unemployment rate is down substantially from its October 2009 peak, but two-thirds of the decline is due to people dropping out of the labor force. In addition, an unusually large share of the unemployed has been out of work for twenty-seven weeks or more—the long-duration unemployed. These statistics suggest that there remains a great deal of slack in U.S. labor markets, which should be putting downward pressure on labor compensation. Instead, compensation growth has moved modestly higher since 2009. A potential explanation is that the long-duration unemployed exert less influence on wages than the short-duration unemployed, a hypothesis we examine here. While preliminary, our findings provide some support for this hypothesis and show that models taking into account unemployment duration produce more accurate forecasts of compensation growth.

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