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American UnemploymentPast, Present, and Future$
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Frank Stricker

Print publication date: 2020

Print ISBN-13: 9780252043154

Published to Illinois Scholarship Online: January 2021

DOI: 10.5622/illinois/9780252043154.001.0001

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Low Unemployment + Low Inflation

Low Unemployment + Low Inflation

Can’t Be Done, Is Done (1975–2000)

(p.86) Chapter 4 Low Unemployment + Low Inflation
American Unemployment

Frank Stricker

University of Illinois Press

The labor force ballooned as more women, immigrants, and baby boomers sought work. Plant shutdowns were common and corporations “downsized” work forces. Real wages began a long decline. Owing to spending on Vietnam and soaring oil prices, inflation surged. Richard Nixon tried government wage-and-price controls and then recession and high unemployment. But inflation stayed up. This was “stagflation.” Some authorities decided that recessions had to be harsher. The Paul Volcker-Ronald Reagan recession of 1981 reduced inflation but eliminated millions of good jobs. Unemployment never fell below 5 percent. Unemployment did not fall below 5 percent before a new recession, which occurred during the presidency of George H.W. Bush. Most economists believed that low inflation required permanently high unemployment; their view was labeled NAIRU—the Non-Accelerating Inflation Rate of Unemployment. The late 1990s were a surprise. Federal Reserve Chair Alan Greenspan and President Bill Clinton helped to bring low inflation and low unemployment at the same time. Real wages increased more than at any time since the early ’70s.

Keywords:   inflation, downsize, stagflation, NAIRU, real wages, Bill Clinton, Alan Greenspan, Paul Volcker, Ronald Reagan, Richard Nixon

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