Other potential inflationary pressures in the year ahead could come from past energy cost increases and higher prices of some imported goods. Labor costs are yet another variable. Although we still have a large supply of unemployed workers, I am now hearing more about shortages of skilled workers and that wages for some of those jobs are beginning to climb.

We will add jobs again in 2005.  I think a number in the order of two million net new jobs in 2005 is in the realm of possibility.

The key improvement in 2004 has been the long-awaited pickup in net job growth.

The sluggish pace of job gains prior to this year has been a reflection of the truly astonishing extent to which firms have been able to expand real output without needing to add workers. This phenomenon appears to be drawing to a close.

I saw the employment index was down. That caught my attention. But we're going to have to wait and see if it is a big deal.

There is wide agreement about the necessity of some regulation to protect workers from illegal discrimination or employer fraud. There is less agreement, however, on the extent to which workplace regulations—including minimum wage laws, mandatory severance pay, right-to-work laws and legislated fringe benefits—are necessary. Overregulation of hiring, firing and working conditions can make the labor market too rigid and make businesses reluctant to start up and to hire workers.

The profitability of the business sector was again propelled by stunning increases in productivity...The vigorous advance in efficiency represents a notable extension of the pickup that started around the mid-1990s. Apparently, businesses are still reaping the benefits of the marked acceleration in technology. The strong gains in productivity, however, have obviated robust increases in business payrolls. To date, the expansion of employment has significantly lagged increases in output...In all likelihood, employment will begin to grow more quickly before long as output continues to expand.

I have stressed the importance of redressing the apparent imbalances between the supply and demand for labor across the spectrum of skills. Those imbalances have the potential to hamper the adjustment flexibility of our economy overall. But these growing imbalances are also aggravating the inequality of incomes in this country. The single central action necessary to ameliorate these imbalances and their accompanying consequences for income inequality is to boost the skills, and thus earning potential, of those workers lower on the skill ladder.

This evidence suggests that government policies toward labor markets can be an important determinant of labor mobility and, consequently, the average unemployment rate and duration of unemployment spells. Most of us would agree that government should provide a safety net for people who become unemployed. However, we must keep in mind that the level and structure of benefits can affect the incentive for the unemployed to seek out new jobs, while high minimum wage rates and high tax rates can reduce the demand for labor.