Sophia Cho and John C. Williams argue in Liberty Street Economics that R* and labor share are linked

Sophia Cho and John C. Williams argue in Liberty Street Economics that R* and labor share are linked

Published April 15, 2026, Sophia Cho and John C. Williams argue that the natural rate of interest, R*, and the labor share are linked. Their model finds that movements in R* account for much of the labor share’s variation, and that structural changes affecting R* may also affect wages and prices. The authors report a longer-run relationship between the measures and say a model using R* tracks the labor share well across trends and short-term fluctuations. Allowing other influences on the trend labor share modestly improves the model’s fit; the authors say those influences had relatively little net effect over the sample. Their policy conclusion is that analyses of changes affecting R* should account for the joint determination of R* and the labor share. They suggest that very low R* is likely to accompany a low labor share, while increases in trend growth may boost both. The authors caution that similar trends alone do not establish a direct connection. How much of the estimated relationship reflects causal effects, rather than common influences on both measures, remains unknown.

Publication: a1b576de-27b4-b8dd-7c15-1eedd0fa284a

attribution — pass: The reading correctly credits the post and its arguments to Sophia Cho and John C. Williams in the New York Fed's Liberty Street Economics. Claims are framed as the authors' findings and suggestions. The appended reader comment is not attributed to the authors.

Sophia Cho and John C. Williams

summary — uncertain: The summary is faithful, but its central terms are not explained in plain language and no definitions are supplied. The labor share is never described; the source defines it as the fraction of output paid to workers. R* is named as the natural rate of interest, but its meaning is not given. A non-specialist may not grasp the development or why lower R* would mean lower wages. Smallest repair: add the source's one-line definitions of both terms, or add them to the term library.

The labor share is “the fraction of economic output that accrues to workers as compensation in exchange for their labor”

date — pass: originalPublished is 2026-04-15T11:00Z, and the reading states April 15, 2026, matching both the UTC day and the dateline. The authors' remarks about future low R* stay framed as their suggestion, not an outcome. The undated reader comment is neither used nor relied on. The source is a publisher page, not an archive copy.

April 15, 2026 The R*–Labor Share Nexus

support — pass: Each claim matches source text: the joint decline, the cointegration evidence, the model tracking the labor share, the time-varying θ result, the policy conclusion, the low R*/low labor share suggestion and the correlation caution. The closing question follows from the authors' own caveat about common influences. It does not add unsupported benefits or costs.

Our results indicate that much of the variation in the labor share can be accounted for by movements in R*.

media — pass: No media is selected, and no verified candidate media were supplied, so there is no media identity or relevance issue.