Many economists think the shortage of workers will cause job growth to slow in the months ahead. But others argue that there is still room for the labor pool to expand, as employers become willing to consider candidates they would have overlooked earlier and as higher wages attract people who had been choosing not to work.
“You did see something like that in the late ’90s, which is probably the closest analogue,” said Jeremy Schwartz, an economist for Credit Suisse in New York. “In a sufficiently strong labor market, you really were pulling people from the sidelines.”
It is unclear whether that can happen again. In the 1990s, baby boomers were in their prime working years; today, they are retiring at a rate of 10,000 a day. The number of people being hired from outside the labor force is near an all-time high. Yet the participation rate — the share of adults working or actively looking for work — has been essentially flat in recent years.
“You do see prime-working-age individuals coming back into the labor force,” said Michelle Meyer, head of United States economics for Bank of America Merrill Lynch. “But the demographic forces are so fierce that it provides a complete offset.”
Policymakers at the Federal Reserve are watching warily for signs that the shrinking pool of labor is leading the economy to overheat, as competition for workers drives up wages and, ultimately, inflation. That could force the Fed to raise interest rates more quickly than planned, which could cause a recession.
Yields on United States government bonds have risen sharply in recent days, a sign that investors expect inflation — and interest rates — to rise in coming years. Those concerns have also filtered through to the stock market, where major indexes fell again on Friday after dropping on Thursday.
But in a speech in Boston earlier this week, Jerome H. Powell, the Fed chairman, said he didn’t see the tight labor market translating into faster inflation. Friday’s report, which showed the unemployment rate falling without wage growth accelerating, is unlikely to change that view, Ms. Meyer said.