Will Longer Hours Finally Start To Lift U.S. Wages?

Although May's sharp drop in the unemployment rate to 6% has heightened inflationary fears, skeptics argue that recent changes in the government's survey methods may have biased the reading in unknown ways. Especially suspect is the finding that the labor force has shown no growth since January, despite a big surge in hiring.

To get around such problems, economist David Kelly of Lehman Brothers Inc. has constructed his own gauge of labor capacity use: total hours worked (calculated by multiplying total employment by the average workweek) as a percent of total potential work effort (derived by multiplying the entire 16-to-65-year-old population by 40 hours). His calculations show that the measure hovered between 60% and 65% from the late 1940s to the early 1980s, moving to the top of that range at cyclical peaks.

During the 1980s expansion, however, Kelly's measure vaulted to still higher ground, as the workweek expanded and women continued to surge into the workforce. After peaking at 72.4% in 1989, it fell to 69% in 1992. But by May of this year it was back to 72.3%.

Such high labor capacity use, says Kelly, suggests that labor cost pressures may be building, though the evolution of competitive labor markets makes the exact danger point uncertain. Meanwhile, he predicts that the strong trend toward longer working hours will continue to reward businesses that cater to people with little spare time.

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