With more of the unemployed lacking the needed skills to fill available jobs, there could be more shortages of certain kinds of workers, leading to upward pressure on labor costs. On the other hand, an environment in which job displacement is more common may make workers reluctant to press for large wage increases, which would tend to restrain labor cost pressures...So far at least, wage pressures have not been higher than one would expect on the basis of the usual measures of labor market slackness.

A better understanding of the motivation and dynamics of how compensation is determined between firms and individuals or small groups of workers would help unravel a number of the inflation puzzles I think we face, including those involving productivity growth, globalization, markups, and expectations formation.

[Wage and compensation growth] is extremely stable.  Even though unemployment has been declining, we're just not seeing any pressure on compensation growth.  Productivity growth is astoundingly high.

The behavior of labor compensation, the height of profit margins, and still-strong productivity growth all suggest that workers and businesses continue to face very competitive market conditions and that cost increases will remain in check. But in the current circumstances, we need to be vigilant for signs of persistent upward pressure on costs, a marked tightening of labor and product markets, a reduction in global discipline on domestic pricing decisions, or increases in inflation expectations--especially expectations of price increases over the longer run.

Judging from aggregate measures of wages and labor compensation, the economy is still operating a little below its long-run sustainable level of production.

Employment gains have started to pick up, and with that, there is good reason to believe disposable income gains will continue to grow.

Growth in health insurance costs is likely to moderate significantly this year...Such moderation could hold down overall compensation growth this year, since it’s doubtful that offsetting increases in wages and salaries would completely fill the gap that quickly.

The extent to which businesses have marked up the prices of their products over the unit labor costs they face has been extraordinarily large for some time now. This large mark-up could return to more normal levels through faster growth in labor compensation or falling inflation, or through some combination of the two. Historical experience with this adjustment suggests that the restraint on inflation could be quite significant even if compensation growth did begin to move upward. The high current markup thus represents the potential for downward pressure on inflation.