ABSTRACT
This chapter presents facts about changes in the price-cost variables during the 1982–88 expansion and during preceding periods. If business cycle experts did the same for economic expansions, the 1982–1988 economic upswing in the United States would surely be called Methuselah. During the early part of the expansion of the 1980s, the gap was largest between 1984 and 1985 when productivity rose 1.4 percent, hourly compensation increased 4.2 percent, and unit labor costs advanced 2.8 percent. The economic consequences of annual productivity gains which were below compensation advances were sharp increases in labor costs per unit of output during the 1970s and early 1980s. 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. In August 1989, the expansion became the second longest in terms of the national bureau of economic research’s monthly chronology, which goes back to 1854.
