NCPA - National Center for Policy Analysis

What Happens If The U.S. Runs Out Of Workers?

January 28, 2000

On Tuesday, the current economic expansion will become the longest in the nation's history -- and unemployment stands at 4.1 percent, the lowest it has been since 1969.

Brookings Institution economist Robert Litan says the 1960s expansion can serve as a warning about what can happen when labor markets get too tight.

  • When unemployment fell to 3.8 percent in 1966, inflation began to pick up.
  • Although inflation had averaged just 1.3 percent from 1960 to 1965, it had risen to 5.5 percent by 1969 -- as unemployment dropped to 3.5 percent.

Economists point out that there still exists a large pool of lower-skilled workers who can be trained -- which will ease labor shortages in some industries. The problem is shortages of higher-skilled workers, such as computer engineers. Such shortages could generate wage inflation and force producers to raise prices.

Beyond the trucking, health-care, high-tech and a few other industries, overall low unemployment has been matched by declines in hourly wage increases, according to the Bureau of Labor Statistics. And so far, not much inflationary threat is detected from wage gains.

  • Perhaps that is because technology has improved productivity.
  • Or more efficient temporary agencies are able to fill job slots quickly and at less cost than hiring a full-time employee.
  • Another explanation is that employees are receiving stock options, telecommuting privileges and other forms of compensation.
  • Finally, with inflation so low, workers just don't seem to be asking for greater raises.

Source: Carlos Tejada, "Boom Spurs Despair Over Labor Scarcity," Wall Street Journal, January 28, 2000.

 

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