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In the years following the financial crisis, economists have been puzzled by a curious fact about the labor market in the U.S. With unemployment high – meaning there was an excess supply of labor – traditional models suggested that both wages and inflation should fall.
Neither has been the case in the U.S. in recent years, and a new report by a trio of economists from Princeton University suggests a reason: The long-term unemployed have been so marginalized that their presence in the market no longer has a discernible effect on wages and inflation.
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