The labor market is the place where individuals go to find jobs, where they earn the wages and salaries that represent the major source of income to finance their personal expenditures and savings. In our simple world, businesses and governments enter the labor market looking for workers, while individuals enter looking for work. If all works well, you will spend most of your time working at jobs that you find satisfying, stimulating, and lucrative, and when you find it necessary to change jobs, you will find that the transition period is short. Employers, on the other hand, will find adequate supplies of trained and motivated workers.
But, things do not always work out that way, as I am sure many of you are aware. How many of you know someone bored to tears with their job, someone who can not find work, or someone who has had to accept a significant pay cut to stay employed? I suspect the answer to one or more of the questions is too often yes. The reality of the situation is, we can not legitimately expect all individuals to find work they enjoy, nor can we expect all employers to find the workers they need. We can not expect the labor market to adjust instantaneously to all shocks, and there have been a number of significant shocks to the system in the past few years. Included in this list would be the rapid pace of technological change, the aging of the baby boom, and the explosive growth of international flows of goods, services, money, and people.
To monitor the workings of the labor market, the government has developed a number of quantity and price indicators. The size of the labor market is measured by the labor force statistics and the labor force participation rates measure the percent of the working age population in the labor force. How successful the economy in absorbing the growth in the labor force is picked up by the two most widely discussed quantity measures of the performance of labor market - employment and the unemployment rate. Employment growth is viewed as important because of the economy's perceived need to provide jobs for the growing population. What politician hasn't offered campaign promises to the constituency of more jobs? Wasn't Michael Dukakis propelled into the presidential election on the strength of the 'Massachusetts Miracle"? Would Mario Cuomo have stayed out of the 1992 Presidential race if the New York economy had maintained its hectic growth only a few more years? Would Clinton's impeachment hearings have gone differently if employment was falling?
Often overshadowing employment as an indicator of successes / failures in the labor market is the unemployment rate. The unemployment rate is designed to measure how far the economy is from full employment. This is one of the specific goals of the federal government, at least if you believe in the letter of the law as written in the Full Employment Act 1946. But be careful before you bet the house on the success rate.
Finally there are the price measures - earnings of the nation's workers and the employment cost index being the two most popular. It is one thing to have a job, but what about a job that pays a decent wage or salary. In the remainder of this section we will be looking at the definition of the government's measure of earnings, employment, and unemployment as well as their track record. We will also be examining how nominal (actual) wage data are corrected to arrive at the inflation-adjusted figures. This will include a brief overview of a number of important demographic developments of the post WW II era including significant changes in the age, racial, ethnic, and geographical distribution of the population. Only after evaluating the performance of the labor market will we be in a position to better evaluate the merits of the competing macroeconomic theories.