to be sure, an acceleration in nominal labor compensation, especially its wage component, became evident over the past year. but the rate of pay increase still was markedly less than historical relationships with labor market conditions would have predicted. a typical restraint on compensation increases has been evident for a few years now and appears to be mainly the consequence of greater worker insecurity. in 1991, at the bottom of the recession, a survey of workers at large firms by international survey research corporation indicated that 25 percent feared being laid off. in 1996, despite the sharply lower unemployment rate and the tighter labor market, the same survey organization found that 46 percent were fearful of a job layoff. the reluctance of workers to leave their jobs to seek other employment as the labor market tightened has provided further evidence of such concern, as has the tendency toward longer labor union contracts. for many decades, contracts rarely exceeded three years. today, one can point to five - and six - year contracts - - contracts that are commonly characterized by an emphasis on job security and that involve only modest wage increases. the low level of work stoppages of recent years also attests to concern about job security. thus, the willingness of workers in recent years to trade off smaller increases in wages for greater job security seems to be reasonably well documented. the unanswered question is why this insecurity persisted even as the labor market, by all objective measures, tightened considerably. one possibility may lie in the rapid evolution of technologies in use in the work place. technological change almost surely has been an important impetus behind corporate restructuring and downsizing. also, it contributes to the concern of workers that their job skills may become inadequate. no longer can one expect to obtain all of one ’ s lifetime job skills with a high - school or college diploma. indeed, continuing education is perceived to be increasingly necessary to retain a job. the more pressing need to update job skills is doubtless also a factor in the marked expansion of on - the - job training programs, especially in technical areas, in many of the nation ’ s corporations. certainly, other factors have contributed to the softness in compensation growth in the past few years. the sharp deceleration in health care costs, of course, is cited frequently. another is the heightened pressure on firms and their workers in industries that compete internationally. domestic deregulation has had similar effects on the intensity of competitive forces in some industries. in any event, although i do not doubt that all these factors

the federal reserve must not acquiesce in an upcreep in inflation, for acceding to higher inflation would countenance an insidious weakening of our chances for sustaining long - run economic growth. inflation interferes with the efficient allocation of resources by confusing price signals, undercutting a focus on the longer run, and distorting incentives. this year overall inflation is anticipated to stay restrained. the central tendency of the forecasts made by the board members and reserve bank presidents has the increase in the total cpi slipping back into a range of 2¾ to 3 percent over the four quarters of the year. this slight falloff from last year ’ s pace is expected to owe in part to a slower rise in food prices as some of last year ’ s supply limitations ease. more importantly, world oil supplies are projected by most analysts to increase relative to world oil demand, and futures markets project a further decline in prices, at least in the near term. the recent and prospective declines in crude oil prices not only should affect retail gasoline and home heating oil prices but also should relieve inflation pressures through lower prices for other petroleum products, which are imbedded in the economy ’ s underlying cost structure. nonetheless, the trend in inflation rates in the core cpi and in broader price measures may be somewhat less favorable than in recent years. a continued tight labor market, whose influence on costs would be augmented by the scheduled increase in the minimum wage later in the year and perhaps by higher growth of benefits now that considerable health - care savings already have been realized, could put upward pressure on core inflation. moreover, the effects of the sharp rise in the dollar over the last eighteen months in pushing down import prices are likely to ebb over coming quarters. the unemployment rate, according to board members and bank presidents, should stay around 5¼ to 5½ percent through the fourth quarter, consistent with their projections of measured real gdp growth of 2 to 2¼ percent over the four quarters of the year. such a growth rate would represent some downshifting in output expansion from that of last year. the projected moderation of growth likely would reflect several influences : ( 1 ) declines in real federal government purchases should be exerting a modest degree of restraint on overall demand ; ( 2 ) the lagged effects of the increase in the exchange value of the dollar in recent months likely will damp u. s. net exports somewhat this year ; and ( 3 ) residential construction is unlikely to repeat the gains of