Behind this Structural Boom: The Role of Asset Valuations

We are in the midst of a structural boom the force of which has not been seen in this country since the 1920s. After the U.S. unemployment rate hit 6 per cent in late 1994, following its two-year recovery, many experts assumed that unemployment had regained its natural-rate path. 1 The natural unemployment rate in the second half of the 1980s had been put at around 6.5 per cent in several estimates, and if the trend reduction in the natural rate brought about by the continuing relative decline of high school drop-outs in the labor force and those whose education stopped at the diploma is placed at .07 per annum, it would have declined on that account to around 6 per cent by 1995. Furthermore, we saw in 1995 the end of money-wage deceleration and in the next year a whiff of wage acceleration. Yet the unemployment rate There seems, therefore, to have been a steep decline, temporary or permanent as the case may be, of the natural rate. (By definition, the so-called NAIRU was reduced over this period.) I would say that the fall was