Roaring Nineties, The

Roaring Nineties, The: Can Full Employment Be Sustained?

Alan B. Krueger
Robert M. Solow
Copyright Date: 2001
Published by: Russell Sage Foundation
Pages: 640
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  • Book Info
    Roaring Nineties, The
    Book Description:

    The positive social benefits of low unemployment are many-it helps to reduce poverty and crime and fosters more stable families and communities. Yet conventional wisdom-born of the stagflation of the 1970s-holds that sustained low unemployment rates run the risk of triggering inflation. The last five years of the 1990s-in which unemployment plummeted and inflation remained low-called this conventional wisdom into question.The Roaring Ninetiesprovides a thorough review of the exceptional economic performance of the late 1990s and asks whether it was due to a lucky combination of economic circumstances or whether the new economy has somehow wrought a lasting change in the inflation-safe rate of unemployment.

    Led by distinguished economists Alan Krueger and Robert Solow, a roster of twenty-six respected economic experts analyzes the micro- and macroeconomic factors that led to the unexpected coupling of low unemployment and low inflation. The more macroeconomically oriented chapters clearly point to a reduction in the inflation-safe rate of unemployment. Laurence Ball and Robert Moffitt see the slow adjustment of workers' wage aspirations in the wake of rising productivity as a key factor in keeping inflation at bay. And Alan Blinder and Janet Yellen credit sound monetary policy by the Federal Reserve Board with making the best of fortunate circumstances, such as lower energy costs, a strong dollar, and a booming stock market.

    Other chapters inThe Roaring Ninetiesexamine how the interaction between macroeconomic and labor market conditions helped sustain high employment growth and low inflation. Giuseppe Bertola, Francine Blau, and Lawrence M. Kahn demonstrate how greater flexibility in the U.S. labor market generated more jobs in this country than in Europe, but at the expense of greater earnings inequality. David Ellwood examines the burgeoning shortage of skilled workers, and suggests policies-such as tax credits for businesses that provide on-the-job-training-to address the problem. And James Hines, Hilary Hoynes, and Alan Krueger elaborate the benefits of sustained low unemployment, including budget surpluses that can finance public infrastructure and social welfare benefits-a perspective often lost in the concern over higher inflation rates.

    While none of these analyses promise that the good times of the 1990s will last forever,The Roaring Ninetiesprovides a unique analysis of recent economic history, demonstrating how the nation capitalized on a lucky confluence of economic factors, helping to create the longest peacetime boom in American history.

    Copublished with The Century Foundation

    eISBN: 978-1-61044-341-8
    Subjects: Business, Sociology

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Contributors
    (pp. vii-x)
  4. Foreword
    (pp. xi-xiv)
    Richard C. Leone and Eric Wanner

    As recently as 1995 it would have been difficult to find a single macroeconomist at a top university who would have thought it possible that, five years later, the rate of unemployment would be below 5 percent, month after month, with only the most modest pressure on prices. So deep was the orthodoxy put forward by so many economists concerning the potentially dangerous relationship between low unemployment and high inflation that even most political leaders seemed to have embraced the notion. Almost no one, it seemed, was prepared to endorse policies that might permit such a situation to arise. The...

  5. Acknowledgments
    (pp. xv-xvi)
    Alan B. Krueger and Robert Solow
  6. Introduction
    (pp. xvii-xlvi)
    Alan B. Krueger and Robert Solow

    As Frank Sinatra might have said: “Those were very good years.” Table 3.1 (from Blinder and Yellen, chapter 3 this volume, 92) offers a capsule version of the events that led to this project and this volume. During the five years 1995 to 2000, the U.S. economy grew faster, maintained a lower unemployment rate, and generated less inflation than in the whole of the 1970s or the 1980s. Even considered overall, the decade of the 1990s looks pretty good, but its second half was eye catching.

    Table 3.1 also shows that the macroeconomic performance of the 1960s was just as...

    • Chapter 1 Prices, Wages, and the U.S. NAIRU in the 1990s
      (pp. 3-60)
      Douglas Staiger, James H. Stock and Mark W. Watson

      One of the most salient features of the U.S. expansion in the second half of the 1990s was the combination of low price inflation, strong real-wage growth, and low and falling unemployment. Seemingly, this runs counter to the postwar U.S. experience that periods of low unemployment and strong wage growth are associated with rising rates of inflation. This paper undertakes an empirical investigation of the extent to which changes in price-setting behavior, changes in wage-setting behavior, and fundamental changes in product and labor markets led to this happy coincidence.

      The facts are summarized in figures 1.1 and 1.2. Figure 1.1...

    • Chapter 2 Productivity Growth and the Phillips Curve
      (pp. 61-90)
      Laurence Ball and Robert Moffitt

      The “new economy” in the United States has since the mid-1990s featured surprisingly benign inflation and unemployment behavior. Before this experience, most estimates of the NAIRU—the nonaccelerating inflation rate of unemployment—were in the neighborhood of 6 percent. Yet unemployment has fallen far below this level, reaching 4.2 percent in 2000, and inflation has not risen substantially. This paper presents an explanation for the apparent improvement in the unemployment-inflation trade-off. We argue that it is caused by another feature of the new economy: the rise in the growth rate of labor productivity.

      Our argument builds on an old idea:...

    • Chapter 3 The Fabulous Decade: Macroeconomic Lessons from the 1990s
      (pp. 91-156)
      Alan S. Blinder and Janet L. Yellen

      Macroeconomically speaking, the 1990s, and especially the second half of the decade, was a remarkably successful period for the United States (see table 3.1). Early in the decade, no one would have bet that the 1990s would prove to be the most fabulous decade since the 1960s. Inflation had flared up in 1989–1990, the economy suffered a recession in 1990–1991, and, at the time of the 1992 election, Americans told pollsters that they were quite pessimistic about the economic outlook. But all that was to change dramatically in the ensuing years.

      The unemployment rate, which reached a decade...

    • Chapter 4 Comparative Analysis of Labor-Market Outcomes: Lessons for the United States from International Long-Run Evidence
      (pp. 159-218)
      Giuseppe Bertola, Francine D. Blau and Lawrence M. Kahn

      The contrast between the labor-market performance of the United States and that of most other advanced economies over the last thirty years has been striking. During the period 1970 to 1975, the unemployment rate was 5.4 percent in the United States but under 3 percent in Australia, Austria, Belgium, France, West Germany, Japan, the Netherlands, Norway, New Zealand, Spain, Sweden, and the United Kingdom.’ Among major Western countries, Italy’s unemployment rate of 4.3 percent was the only one close to the U.S. unemployment level. American observers pondered the explanation for the persistently higher U.S. unemployment levels. This concern was well...

      (pp. 219-259)
      Jessica Cohen, William T. Dickens and Adam Posen

      The way in which work is organized in the United States has undergone a radical change in the last twenty years. Job stability has declined for long-tenured workers, there has been a large increase in the use of contract and temporary workers, especially on the manufacturing shop floor, and there has been widespread adoption of new forms of workplace organization.¹ The business press and industrial-relations experts who have traced and documented these trends often associate them with an increasingly competitive environment for U.S. business, driven by international trade and technological change.

      The effects of these transformations on income distribution and...

    • Chapter 6 The Effects of Growing International Trade on the U.S. Labor Market
      (pp. 260-306)
      George Johnson and Matthew J. Slaughter

      Since the 1960s, the United States has moved from being an essentially closed to being a fairly open economy, and it is likely that this trend will continue into the foreseeable future. The purpose of this paper is to explore the major implications of the increasing openness of the economy for the performance and the potential of the U.S. labor market.

      The first section looks briefly at the major trends in recent decades in U.S. wages and in trade and other measures of U.S. economic openness. Trade has been continuing to increase, and only since about 1996 have the real...

    • Chapter 7 Labor and the Sustainability of Output and Productivity Growth
      (pp. 309-366)
      Rebecca M. Blank and Matthew D. Shapiro

      As the expansion of the 1990s has continued into the first year of the new century, there is ongoing interest in understanding the surge of output and productivity growth that this expansion has brought. The labor market plays a crucial role for both output and productivity. Labor is the most important factor of production in terms of value added. Labor is also substantially more easy to reallocate from old to new activities than is capital, so the dynamics of the labor market should give it a leading role in the economic transition toward new industries and new technologies. On the...

    • Chapter 8 Changes in Unemployment Duration and Labor-Force Attachment
      (pp. 367-420)
      Katharine G. Abraham and Robert Shimer

      Between the late 1960s and the late 1970s, the U.S. unemployment rate trended consistently upward. The unemployment rate attained at successive cyclic peaks increased from 3.4 percent in September 1968 to 4.6 percent in October 1973, 5.6 percent in May 1979, and 7.2 percent in April 1981 (see figure 8.1). In November 1982, the worst point of the 1981 to 1982 recession, the unemployment rate reached a postwar high of 10.8 percent. Since that time, however, unemployment has fallen back toward the levels of the late 1960s. By March 1989, the unemployment rate had dropped to 5.0 percent, and, from...

    • Chapter 9 The Sputtering Labor Force of the Twenty-First Century: Can Social Policy Help?
      (pp. 421-490)
      David T. Ellwood

      This paper has two distinct parts. The first finds evidence that the growth of the labor force will be very different in the future than it was in the past, a finding that has some very troubling implications about skill levels: First, over the next twenty years, labor-force growth will slow considerably, and the number of prime-age workers will remain essentially unchanged. What growth there is will come from older workers. Second, only a tiny fraction of new workers will be native-born whites. Indeed, the number of prime-age native-born white workers willdeclinesignificantly over the next twenty years. Third,...

    • Chapter 10 Another Look at Whether a Rising Tide Lifts All Boats
      (pp. 493-537)
      James R. Hines Jr., Hilary W. Haynes and Alan B. Krueger

      President John F. Kennedy made famous the saying, “A rising tide lifts all boats.” The American experience of the 1960s and 1970s—decades during which periods of rapid economic growth were accompanied by improved living standards for the disadvantaged—amply supported this view. Subsequent decades, however, did not, and the steadily declining real earnings of low-wage workers during the economic expansions of the 1980s and early 1990s have led many to question the ability of economic growth to ameliorate economic and social ills for the disadvantaged and perhaps even for the median worker. This paper assembles evidence on the cyclic...

    • Chapter 11 Rising Productivity and Falling Unemployment: Can the U.S. Experience Be Sustained and Replicated?
      (pp. 538-578)
      Lisa M. Lynch and Stephen J. Nickell

      The economic expansion of the U.S. economy over the past decade was quite exceptional, if not “fabulous,” as Alan Blinder and Janet Yellen (chapter 3 in this volume) label it. Growth was at its highest level, and unemployment fell to its lowest level in a generation. Our purpose in this paper is to look at some of the forces underlying these dramatic changes.

      We begin in the first section by looking at the sharp increase in the growth rate of potential output, which we split up into trend-productivity growth, the growth in the population of working age, falls in the...

  11. Index
    (pp. 579-592)