Over at WaPo. The wage part of the story I show, lifted from a piece in WSJ about Lincoln, NE, where unemployment is 2.3%, is a familiar one, though the magnitude of the growth rate is pretty striking.
But the productivity part is, of course, trickier (“of course” because I don’t think economists really know nearly enough about what moves productivity growth). The figure below plots a smooth trend of productivity growth against the Levin employment gap measure we like to use around here, where zero implies full employment (the gap accounts for unemployment, involuntary part-time work, and a share of those missing from the job market).
The last time we were at full employment, in the latter 1990s, productivity growth notably accelerated. It has since slowed considerably, and my WaPo piece suggests a possible reason why. In weak labor markets, firms can maintain profit margins–and high ones at that, in this expansion–by squeezing labor costs. In tight markets, with wage pressures, firms can absorb higher costs by finding efficiencies they previously ignored.
Of course, they could raise prices as well, and I’d expect to see some of that. But while the idea that firms are leaving efficiencies on the table in weak periods doesn’t square with classical economics–such firms should be quickly crushed in a competitive market–I suspect in real life, where multiple equilibria exist, that sort of thing happens more often than not.