Unemployment in the state hit an all-time low of 2.1 percent this summer, the lowest in the nation. Though it has edged up a little since, it is still among the tightest labour markets in the US. And Connecticut is only the most extreme manifestation of the conditions that now prevail across America. Unemployment nationally is 4.1 percent, the lowest since 1970. The performance of the US labour market in the late 1990s is as much a feature of the puzzlingly benign so-called New Economy. For the past four years the US has enjoyed an average annual growth rate of 4 percent— up from an average of about 3 percent in the previous decade. Productivity improvements account for about two-thirds of that elevated output, as workers have increased their output per hour. The rest has come from a rapid increase in the total number of workers, what economists call labour inputs. There has been a surge in new jobs—7m in the last three years—that has pushed the unemployment rate down into the uncharted territory of barely 4 percent. Recent economic history suggests that, whenever unemployment has gone this low, the scramble for workers becomes so difficult that wages are rapidly bid up, and an inflationary spiral follows. But in the US in the past five years, wage growth has been muted. In the last year, total employee compensation in the private sector rose by just 3.3 percent, almost unchanged on the figure three years ago, when the unemployment rate was 5.4 percent. 'In some ways it's a bigger puzzle than the productivity puzzle,' says Paul Krugman, professor of economics at the Massachusetts Institute of Technology. 'How can we have such a low unemployment rate without an explosion of wages?' A number of factors appear to have contributed. In their search for workers to fill positions, companies have reached out to places they have not looked at in the past. As a result, more people are working than ever. The proportion of the population in employment reached a record high this year of more than 64 percent. This expanded labour supply helps explain why companies have kept the lid on pay over the last few years. The availability of new sources of labour—women, retirees, college students among them—means companies may not have to give big pay rises to hire new workers. It also helps explain why the benefits of the New Economy are not always widely felt—more people seem to be working longer hours than ever. But an expanded labour supply can only explain part of what has changed in the US in recent years. After all, unemployment—the proportion of the labour force out of work—has still declined, indicating that companies have drawn new workers not just from the pool of those not previously in the labour force, but also from the unemployed. And yet still wage costs have remained muted. One possible explanation is that companies have become more flexible in how they pay. 'At Newfield, we use a much broader variety of means to reward workers, including performance related pay, year-end bonuses, and extended contracts,' says Mr. Ostop. Why does Connecticut have the tightest labour market in the U. S. ?