This corresponds to the rise in real wages, which represents an increase in households' real income. This raises households' purchasing power, stimulating private consumption, which in turn will spur new investment by firms through a rise in corporate profits.
In this manner, the mechanism will start to operate by which increases in wages create a virtuous cycle from income to spending and encourage further economic expansion. As mentioned earlier, in each of the four recovery phases, including the current one, labor market conditions tightened or have tightened. However, the specific degree to which labor market conditions tightened differs by phase (Chart 4).