The worker insecurity hypothesis seeks to explain the recent favorable inflation performance as a labor market event, in which workers have been cowed by the recent spate of job losses (or threats of job losses) and, as a result, are less likely to push for additional wage increases, even in tight labor markets. Two issues have to be addressed relative to this hypothesis.
Is there evidence in labor market data, other than via Phillips Curve equations, to support this hypothesis? Is the decline in NAIRU resulting from worker insecurity permanent or temporary? There are two types of evidence supporting the hypothesis that workers have become less secure about their jobs.