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To: long-gone who wrote (34672)	5/30/1999 10:49:00 AM
From: Ahda	Respond to of 116764

Friday May 28, 4:02 pm Eastern Time U.S. labor shortage gives Fed an enviable headache By Marjorie Olster NEW YORK, May 28 (Reuters) - Federal Reserve officials, faced with the lowest unemployment in almost three decades, have a problem their counterparts in Europe would surely envy. While the European Central Bank grapples with an unemployment rate more than twice the U.S. level, the Fed is wondering how to prevent this country from running out of workers. One senior Fed official recently urged the government to allow more skilled immigrants in and to give retirees more incentives to rejoin the labor force. Some say employers must offer better incentives, while others say the Fed may have to raise interest rates to curb consumer demand. ''Labor shortage is tricky,'' said one Fed source. ''Is Fed policy too expansionary if there is a labor shortage? Labor is short only if demand is too strong. (Federal Reserve Chairman Alan) Greenspan is more inclined to say demand is too strong and we ought to take some restrictive policies,'' the source added. The U.S. unemployment rate stood at 4.3 percent in April, near its lowest level in 29 years, with labor shortages popping up in many parts of the country. The Fed's latest ''Beige Book'' survey of regional economic conditions noted that a lack of truck drivers slowed shipping growth in Atlanta, St Louis and Chicago. Fed banks in Atlanta and Dallas said their regions are short of construction workers. With so many Americans working and spending, gross domestic product growth raced along at a 4.1 percent pace in the first quarter of 1999, powered by robust consumer demand. Perhaps more alarming to the Fed, consumer prices rose at a much faster pace than expected in April. The Fed this month warned it is worried about acceleration of inflation when it switched its policy stance from neutral to a ''tightening bias,'' indicating it is now leaning toward a rate hike as its next move. But Dallas Fed President Robert McTeer recently urged government policy changes, not monetary policy adjustments, to avert a labor shortage. He proposed loosening immigration for skilled workers and eliminating an earnings tax on Social Security recipients returning to work. ''With unemployment now at its lowest level in 29 years, we may soon have trouble finding workers to fill new jobs,'' McTeer wrote in a recent Wall Street Journal editorial. ''To keep the economy growing at its recent pace, we must draw more people into the work force.'' His proposal drew fire from critics who said boosting immigration would be in the interest of business, not workers, because it would keep wages down. Several Fed economists and academics told Reuters in interviews they did not endorse the idea of loosening immigration to ease a labor shortage. Rather, they said, employers should offer higher wages or other incentives to lure more U.S. citizens back into the workplace. But higher wages, unless they come with gains in worker productivity, raise red flags among Fed officials worried about inflation. So the U.S. central bank may see no choice but to raise interest rates to curb the consumer spending that has helped drive the U.S. to near full employment. ''It all depends on how fast demand will keep growing,'' said Ricardo Gazel, senior economist at the Kansas City Fed. ''So far we have seen although labor force participation has increased, the unemployment rate is going down. That means demand is outstripping higher labor force participation.'' A key question is whether consumer demand will continue to outpace productivity gains, creating a need for more workers to meet those demands. Immigrant workers could fill many jobs, but economists noted they would spend their earnings. That spending could spur still more jobs growth, doing little to cure a labor shortage. Gazel noted the political controversy in changing immigration laws, and urged steps to draw more U.S. citizens back into the workplace. An increase in the numbers of people working has already prevented a more severe labor shortage. Homemakers, workers once thought unemployable because of lack of skills and people who had been too discouraged to find a job, are finding new opportunities to work. Employers are offering more flexible hours and training to lure them to jobs. U.S. labor force participation grew from 63.2 percent in 1978 to 67.1 percent in 1998 and is currently at the highest levels since the end of World War Two, Gazel said. The Beige Book said there were no reports of ''significant pickup in wage increases''. Instead, some companies are improving benefits and offering hiring and retention bonuses, the Fed said. Richard Freeman, a Harvard University economics professor, said McTeer's views are not representative of the Fed. ''In 20 years, there has been no real wage growth for normal Americans. Now when the boom is trickling down finally, don't stop the trickle down,'' he said. ''I wouldn't be the least bit surprised if Alan Greenspan shared these views. To bring people back into the market, a little inflation is necessary and I bet most people would say fine.''