Labor Supply in a Tight Labor Market

Abstract

[Excerpt] With the unemployment rate at a 30-year low and employment continuing to expand at a robust pace, many economists and policy makers are scrutinizing labor statistics for signs of tightness in the labor market. Some are concerned that the demand for labor will outstrip supply, leading to upward pressure on wages that could possibly ignite inflation. Many economists wonder how long wage gains can remain moderate in the face of strong employment growth, low unemployment, and, presumably, a dwindling supply of potential workers. This summary highlights some of the concepts often used in the discussion of potential labor supply. There are no official definitions for, and hence no official estimates of, the potential supply of workers. However, existing data are discussed briefly to gain some insight as to how to begin to gauge the size of the potential supply of labor—broadly defined herein as persons not working who could conceivably become employed. The analysis also demonstrates how difficult it is to construct a meaningful measure of this group of persons.