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Layoff fears = low inflation
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January 22, 1997: 9:23 p.m. ET
Greenspan: Inflation partly held in check by job insecurity
From Correspondent Allan Dodds Frank
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NEW YORK (CNNfn) - U.S. Federal Reserve Chairman Alan Greenspan cheered markets earlier this week when he used congressional testimony to report "few signs" of U.S. inflation.
Investors took Greenspan's remarks, made Tuesday, as a sign that the Fed might not raise interest rates any time soon -- good news for stocks.
But outside Wall Street, many took note of Greenspan's comments about why inflation seems subdued.
"As I see it, heightened job insecurity ... explains a significant part of the restraint on (wages), and the consequent muted price inflation," Greenspan told the Senate Budget Committee. "Surveys of workers have highlighted this extraordinary state of affairs."
Greenspan pointed out that despite a U.S. healthy labor market, worker's insecurity about layoffs has nearly doubled in the last five years.
Some labor observers see Greenspan's statement as extraordinary -- the nation's top economist saying, in effect, that a culture of fear has changed the U.S. workplace.
Sam Bacharach, a Cornell University labor-relations professor, said that "in plain English," Greenspan's remarks mean "that for all too long we've ignored ... those workers in our society who are working, but are working with the fear that tomorrow they won't have a job -- so they'd better keep their mouths shut."
Labor watchers say another aspect of the new culture involves middle managers, who -- despite often being most vulnerable to layoffs -- decide they're better off staying put.
"All the talk about corporate downsizing has made people in large corporate bureaucracies tremble, because some of them realize that if they went into the competitive labor market, they wouldn't be able to earn as much," said labor economist Audrey Freedman.
Still, Greenspan noted in his testimony that layoff fears can't hold wage inflation down forever.
"At some point in the future, the trade-off of subdued wage growth for job security has to come to an end," he said.
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Federal Reserve Board
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