NCPA - National Center for Policy Analysis

In Search Of Workers

April 23, 1999

Will high employment levels slow the economy's growth? Some economists fear the answer is yes. Finding employees -- never mind how skilled -- is a problem throughout the country, but especially in the Midwest, where unemployment rates have fallen to as low as 1.5 percent. (Nationally the rate is 4.2 percent, the lowest in more than 29 years.)

If firms can't find the bodies they need, they can't expand. And if enough firms stop growing, economic expansion will slow.

  • Based on current trends, the Labor Department projects the U.S. economy will add some 19 million new jobs through the year 2006.
  • But the workforce will grow by just 15 million.
  • So far, firms are coping by increasing the productivity of the workers they do have -- through more automation, greater reliance on computers and increased worker training.
  • While welfare reform has enlarged the pool of job applicants, nearly 32 percent of them lack adequate reading and math skills, according to the American Management Association -- up from 23 percent in 1997.

Then there is the question of whether labor shortages will force employers to hike pay to keep their present personnel on board and to lure workers from other firms. If compensation rates rise, would the Federal Reserve be forced to hike interest rates? If so, that might also slow economic expansion, experts warn.

Source: Charles Oliver, "Will the Tight Labor Market Limit the Growth of Economy?" Investor's Business Daily, April 23, 1999.


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