When the February employment report comes out on Mar. 10, it will surely reignite debate over the tightness of the labor market. Some economists say the svelte jobless rate of 4.7% -- the lowest level since the late 1990s -- makes job markets appear tighter than they are.

They point to the low labor-force participation rate, the percentage of the adult population that is employed or actively seeking a job. The participation rate remains well below its pre-recession level of the late 1990s, suggesting that a lot of potential workers have simply quit looking for a job.

The degree of labor market tightness hinges on how many people not counted in the official jobless rate would work if given the chance. People who have not actively looked for a job in the past four weeks are not officially considered a part of the labor force and thus not captured in the jobless rate. But as job markets improve, those people might easily dust off their résumés and start job hunting. The participation rate is now at 66%. But if it were above 67%, as in the late '90s, close to 2.5 million more people would be in the workforce and the official jobless rate would be higher.

However, an alternative measure of joblessness, which counts as unemployed those willing and able to work but not searching, is also declining. This rate, called U-5 by the Labor Dept., was 5.7% in January, down from 6.4% a year ago. The current level is comparable to that in 1997, the last time the official rate was as low as it is now, points out economist Michael Feroli at JPMorgan Chase (JPM ). The alternative rate implies that discouraged workers are not why the participation rate is lower, and why it is unlikely to shoot back up.

The reason is structural. The number of 16- to 24-year-olds in the workforce has been falling as more young adults go to college. Since 1997 the participation rate for this group has plunged from 66% to 60%. "You are not going to see 16- to 24-year-olds go back into the labor market en masse," says Feroli.

If so, and the overall participation rate stays down, then the Fed could face added pressure to keep raising interest rates to assure that tight job markets don't stoke inflation.

By James Mehring in New York

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