Anecdotal reports suggest that the labor market is tight in some industries and occupations and that employers are having difficulty attracting certain types of skilled workers.  To date, however, moderate growth in most broad measures of nominal labor compensation and the ongoing increases in labor productivity have held down the rise in unit labor costs, reducing pressure on inflation from the cost side.

I think [the number of jobs that must be created monthly to maintain constant employment] is dropping. I would say now it's more like 130,000. And within the next few years, it might be down to 100,000...This is all based on research at the Federal Reserve on labor participation rates, which suggest that  we'll be seeing, over the next 10 years, some significant decline from the current about 66 percent of the adult population is in the labor force.  We expect to see that coming down and, therefore, the number of jobs a month we need to keep the unemployment rate is constant is likely to fall as well.

Americans with weaker job-market skills have not benefited as much from the growing U.S. economy as have other Americans with higher-level skills. Economists call this "skill-biased technical change." People who lack the skills needed to keep up with changes in technology cannot take full advantage of the benefits of the growing sectors of the economy. If lower-skilled Americans fall further behind, the result will be increased income inequality and, ultimately, greater poverty.

Consumers have sustained their spending during the past several years, in part, by cashing out some of their home-equity dollars. This extra source of financing is likely to slow down in a softening housing market. Fortunately, though, I expect to see enough employment and income growth coming out of the labor market to keep consumer spending advancing at a moderate rate.

Anecdotal reports suggest, however, that the labor market is tight in some industries and occupations and that employers are having difficulty attracting certain types of skilled workers.

My broadbrush view is that the economy is now operating in the vicinity of "full employment." Looking ahead, if the growth rate of economic activity returns to its trend, as seems likely, then labor markets are likely to remain at this level.

The solid growth forecast for the economy also should translate into steady growth in employment.  The increases will be somewhat less than employment gains seen in the past two years due to two factors.  First, as growth slows and converges toward the economy's trend growth rate, fewer additional workers will be needed.  And second, strong productivity growth over the past few years is expected to continue, sggesting that the existing workforce will be able to produce a sozeable portion of the projected increase in output.  Based on these factors, I would expect that employment will grow by between 1.5 and 2 million jobs in 2006.  That translates into an increase of 125,000 to 167,000 jobs per month.

At the Boston Fed we have begun to hear anecdotes about skilled labor being even harder to find and more expensive than earlier, but this is usually in the context of a continuing emphasis by businesses on working harder and smarter in the face of keen competition. It is also true that rather low labor force participation nationwide could suggest labor markets are less tight than the unemployment rate suggests.

This relatively low unemployment number [4.8%] raises the question of whether the economy has already gone a bit beyond full employment. If it has, then, with real GDP growth expected to exceed its potential rate in the first half of this year, the strain on resources could build further, intensifying inflationary pressures. Additional inflationary pressures at this point would be particularly unwelcome, because inflation is now toward the upper end of my “comfort zone.”

I’m not convinced that foreign capacity is a major reason to shrug off concerns about the possibility of overshooting capacity in U.S. labor and product markets. And, as I’ve said, it appears that the economy is near full usage of resources, but it’s not clear whether we are slightly above capacity or below.

While we face a great deal of uncertainty, the economy appears to be approaching a highly desirable glide path. First, real GDP growth currently appears to be quite strong, but there is good reason to expect it to slow to around its potential rate as the year progresses. Second, it appears that we are operating in the vicinity of “full employment” with a variety of indicators giving only moderately different signals. Finally, inflation is near the high end of my comfort zone, but it appears well contained at present, and my best guess for the future is that it will remain well contained.

Putting all these factors together — slower population growth, an aging baby boom generation, the plateauing of women joining the workforce, young people’s delayed entry, and the capping of immigrant inflows — growth in our nation’s labor force will almost surely drop below 1 percent in the decade ahead, perhaps significantly so.

If [the recent slow employment growth] is defined as a demand condition, perhaps poor job prospects have discouraged people from even attempting to find work. Will another year like 2005 reverse the recent trend? And does that mean that monetary policy should be accommodative until the economy is once again generating substantially more than 2 million new jobs per year? Alternatively, if the lower labor-force participation rate is defined as a supply condition, then it may be driven by younger workers' deferring entry into the labor force - perhaps to obtain more schooling and skills. If that is the correct explanation, then potential employment will be calculated much differently from the number we saw in the 1990s. In that case, attempting to spur more rapid job growth with an accommodative monetary policy is exactly the wrong thing to do. It will not accomplish the goal of maximum sustainable growth in the long run, and it may threaten our goal of price stability.

Continued increases in industrial productivity have enabled a relative shift of employment into the production of services. Although manufacturing employment has fallen sharply in recent years, both in absolute terms and as a share of total employment, the output of the nation's manufacturers has continued to increase because of impressive productivity gains.

The gaps in wages and unemployment rates between the skilled and less-skilled workers in the U.S. economy have widened dramatically since the late 1970s. Currently, unemployment is only about 2.5 percent among those with a college degree, but it's over 8 percent for high school dropouts. Furthermore, research shows that each additional year of education tends to raise incomes by about 10 percent. And these returns are not merely private. Researchers are finding that education raises the productivity of other workers, lowers crime, and raises public involvement in the policy process. Some believe that these social benefits alone may exceed the 10 percent per year private return.