South-Western College Publishing - Economics  
Labor Looks Good on Labor Day
Topic Employment, Unemployment, and Inflation
Key Words Employment, Unemployment, and Inflation
News Story The U.S. Labor Department's tally of new jobs as of August 2006 was actually stronger than most analysts had predicted. With analysts expecting around 125,000 jobs, the reported figure of 128,000 additional new jobs was a welcome sign of economic strength.

The unemployment rate had reached a five-month high of 4.8 percent in July, but the better-than- expected job gains brought the current unemployment rate down a notch to 4.7 percent. This good news eased some worry that the current economic expansion, which began in late 2001, was in danger of fizzling out.

"Today's report was solid and indicates that the economy is not falling away very quickly but it certainly wasn't so spectacular that it renewed oversized fears of inflation," said LaSalle Bank chief economist Carl Tannenbaum. "The report is right on the mark. Goldilocks may be coming. The economy is not too hot nor too cold," he said.

American workers' wages provided more good news for the Labor Day holiday. Average hourly earnings eased upward to $16.79 in August. This increase represented a 0.1 percent increase over July. Looking back one year ago from August 2006, wages grew by a strong 3.9 percent. The last time this figure was higher was in June of 2001. While workers obviously welcome wage growth, analysts worry that too strong a wage growth rate can be inflationary as workers have more to spend.

At their August 8, 2006 meeting, The Federal Reserve decided to halt its more than a two-year long campaign to gradually raise interest rates to control inflation. The FOMC has continued to hold rates steady, indicating that they are not overly concerned about inflationary pressures in the economy. Fed officials seem convinced that the economy is slowing but they expect a "soft landing," meaning a gradual slow down without a large increase in employment.

Questions
Discussion Questions:
1. Visit the U.S. Department of labor site at http://www.bls.gov/cps/ and identify the employment-population ratio. How does this differ from the employment rate?
2. On the same sight listed above, visit the FAQ's and determine who is not included in the labor force as the U.S. Labor Department calculates unemployment statistics.
Multiple Choice/True False Questions:
1. The type of inflation caused by increasing wages is:
  1. demand-push inflation.
  2. demand-pull inflation.
  3. cost-push inflation.
  4. cost-pull inflation.
2. Given a population of 100 million, a labor force of 50 million and 46 million workers employed, the unemployment rate is:
  1. 5 percent.
  2. 6 percent.
  3. 8 percent.
  4. 4.6 percent.
Source Associated Press, "Payrolls Grew by 128,000 in August", The New York Times Online, September 1, 2006.
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