ABSTRACT
This chapter presents facts about changes in the price-cost variables during the 1982-88 expansion. It discusses structural changes in the economy which may account for the price-cost changes. This is followed by an examination of some of the policy implications of the new environment in labor markets. Meteorologists attach names to the hurricanes they study. If business cycle experts did the same for economic expansions, the 1982-1988 economic upswing in the United States would surely be called Methuselah. The policy implications of an economic environment within which labor costs per unit of output are rising, as compared with a situation in which they are either stable or failing, are plain. The simple point is: an imbalance between labor cost increases and productivity improvements and the consequent push of unit production costs on prices is not a viable condition for prosperity without inflation. The expansionary policies can sometimes be pushed too far even in a broadly favorable environment.
