Federal Reserve policymakers last week pointed to a "tight" job market as a major factor in the inflation worries that might prompt higher interest rates.
Higher rates would traumatize financial sector companies and stocks. Already, higher bond yields have forced up mortgage rates, slowing the housing finance sector.
But some economists do not think tight labor conditions either threaten economic growth or amount to a dangerous inflation threat right now. By itself, the labor market does not justify a Fed credit-tightening, these economists say.
"The labor market per se is not on my list of imbalances in the economy," said Kenneth T. Mayland, chief economist at Cleveland's KeyCorp, who has studied the issue closely for several years.
The worry is that if businesses cannot find additional workers in a tight market, output of goods and services cannot grow. Even worse, labor costs rise, and the creation of new jobs slows.
But those assumptions were clearly tested last year and found wanting, Mr. Mayland said. The economy's real growth rate was a robust 4.3% while new payrolls swelled by an "above trend" 2.8 million and the much-watched jobless rate hovered near a 30-year low.
If business output had actually been constrained, economic growth might have slowed to the 2% range last year, he said.
After examining state-by-state data, Mr. Mayland said the record shows "little to no tendency for job growth to slow in spite of the economy performing beyond 'full employment.'"
Apparently, the opportunities spawned by a dynamic business climate "keep pulling new workers-teens, homemakers, retirees-into the labor force," he said.
In fact, the government's latest jobs report showed that the unemployment rate for black people fell to 7.7% in April, from 8.1% in March. Though much higher than the 4.3% overall jobless rate, the rate for blacks has been falling much faster than the overall rate, said economist George Huang of the Los Angeles County Economic Development Corp.
"For those who worry about minorities not benefiting from the current economic expansion," he said, "these statistics should help put away their fears."
Moreover, the abundant opportunities in a tighter labor market let many people shift from lower productivity jobs to higher productivity posts. The result is a net real gain for the economy, Mr. Mayland said.
Not surprisingly, the nation's entire working population is at a postwar high. The civilian labor force participation rate now exceeds 67%. Last month, another 36,000 people joined the work force.
But what about labor costs? Surely a tight job market is bound to be inflationary.
"The data reveal virtually no association across state economies between the growth in wages and the average unemployment rate," said Mr. Mayland. "North Dakota, for instance, had an unemployment rate of 3.1% in January 1998 and 2.6% in January 1999, but over the period, wages grew a miserly 1.1%."
Wage growth, he said, "is more closely (and positively) correlated with job growth, which better reflects the dynamism of the labor market."
Though still strong, job growth has slowed from its peak rate, which helps explain why wage growth has decelerated, he said.