How Much Surplus Labor Do We Have?

Janet Yellen wants the hawks in the Federal Reserve System to cut her some slack on the topic of slack. As economists use the term, slack in the job market is a measure of labor supply. Too much slack means high unemployment. Too little means worker shortages, spiking wages, and inflation. Whether there’s too much slack, too little, or just the right amount has been a topic of intense debate since well before Yellen’s scheduled Aug. 22 speech on labor markets at the Federal Reserve Bank of Kansas City’s annual conference in Jackson Hole, Wyo.

Yellen, in her first year as chair of the Fed’s board of governors, is a slacker—she says the labor market remains soft and the central bank should keep concentrating on growth, not restraining inflation. She’s up against a group of hawks such as Charles Plosser, president of the Federal Reserve Bank of Philadelphia, who say the slack is all but used up. Both sides cite official statistics to make their cases. “There’s lots of asymmetry out there in the data right now,” says Neil Dutta, head of U.S. economics at Renaissance Macro Research.