The first chart shows US W/NGDP, where W is the average hourly earnings of nonsupervisory production workers. When the crash hit in mid-2008 it spikes. Wages are sticky so unemployment rises.
Unemployment (both the ‘regular’ and the U6 (considers those marginally attached and ‘involuntary’ part timers) measures) is graphed next.
Contrary to what´s happened in the UK, in the US the W/NGDP ratio has come back down. That explains the fall in unemployment. But unemployment should have come down much more given the fall in W/NGDP towards levels that prevailed before the crisis.
And that is very likely due to the NGDP gap that has remained wide even if the ‘new’ trend level is somewhat lower than the previous one.
Details to note: From the last chart we see that between 2003 and early 2006 NGDP is ‘climbing’ back to trend. Therefore, NGDP growth is higher than trend growth, implying that the W/NGDP ratio is falling and so is unemployment.
In 2006-07, NGDP grows close to trend growth. Unemployment ‘stabilizes’ and so does W/NGDP.
Then, the ‘tsunami’ arrived. Some say it was due to the bursting of the house bubble, some say it was the result of the financial crisis that ensued (with Lehman the trigger), with all these things ‘commingling’ with the high level of private debt that prevailed. MM´s point the finger at the Fed and say “you did it”!