On the left, this chart is a summary of the U.S. labor market. The grey line shows its unemployment rate and the purple line is the year-over-year change in hourly earnings. Historically, there is a clear relationship between the two indicators. As the unemployment rate fell and the labor markets tightened, average hourly earnings rose at a faster rate as employers need to pay more to attract workers.

On the right, the grey line is the ratio of JOLTS job openings (a proxy for labor demand) to the number of people unemployed (a proxy for labor supply). The grey line increased rapidly after the COVID lockdowns, reflecting the recent tightening of the labor market, where labor demand outpaced labor supply. The purple line shows civilian labor force participation, which has trended down in the past two decades. It has only modestly recovered from the bottom of the pandemic and is still lower than pre-pandemic levels, which can partially explain the current labor market tightness.