The Growth in Work Time and the Implications for Macro Policy

In May 1997, the official unemployment rate was 4.8 percent—the lowest in 24 years. Not long ago, most
economists would have considered such an unemployment record impossible to achieve without igniting a
cycle of wage-led inflation. Yet, in the first quarter of 1997 prices rose at only a 1.8 percent annual rate; some
regional labor markets have maintained local unemployment rates of 4.0 percent without any sign of upward
wage pressure. Can unemployment go even lower before prices begin to rise? Research Associate Barry
Bluestone, of the University of Massachusetts Boston, and Stephen Rose, of the Educational Testing Service,
think that it can.