South-Western College Publishing - Economics  
Still Sizzling
Subject Unemployment, Labor Market
Topic Employment, Unemployment, and Inflation
Key Words Employment, Unemployment, Labor Force, Inflation, Economic Growth
News Story

The Labor Department reported that January's unemployment rate fell to 4 percent, the lowest level in 30 years. This provides further evidence of the economy's strength and the tightness of the labor market. The January data show that 925,000 people entered the labor force and there was an increase of 387,000 workers to employer payrolls. Even with the unemployment rate at 4 percent, there was little evidence in the data of accelerating wages. Hourly wages rose 0.4 percent last month - 3.5 percent over the last year.

Labor Department data indicate that the labor market is sizzling. The average increase in monthly payrolls for the last three months is 320,000, a substantial increase from the 243,000 monthly average from the same period last year. There are a substantial number of jobs in all parts of the country and virtually everyone who wants to work has had little trouble finding a job. Half of the nation's 5.7 million unemployed have been out of work for less than 6 weeks. A record 67.5 percent of the population 16 years old or older is in the labor force and the employment/population ratio is also at a recordľ64.8 percent.

The economy's strength will no doubt be a cause of concern to the Federal Reserve. The Fed is likely to continue to raise interest rates to cool off the economy. There was no evidence in this moth's labor market report of wage acceleration, but the Fed is worried that wage pressure is mounting. The pool of unemployed not in the labor force, a potential source of labor supply, is shrinking and Fed Chairman Greenspan believes that as this pool shrinks wages begin to rise. Part of the employment increase was due to mild weather. Other special circumstances include the hiring of 11,000 government workers to work on the decennial census.

(Updated March 1, 2000)

Questions
1. How is the labor force defined? According to the article what percent of the noninstitutional population 16 years old or older was in the labor force?
2. What is the employment/population ratio? What information does it provide about the state of the labor market? What is the current employment/population ratio?
3. There is concern that as the labor market tightens, wages will rise. What is meant by the term "tight" labor market? How would a tight labor market put pressure on wages to rise?
Source John M. Berry, "4% Jobless Rate in January is Lowest Level in 30 Years," The Washington Post, February 5, 2000.

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