Some economists think that as the US labour market tightens and wages rise, working-age Americans sitting on the sidelines will decide it is worth their while to start looking for work again.
In the view of these analysts, the official jobless rate - which stood at a historically low 4.8 percent in February - misses hidden unemployment suggesting that labour-market conditions are not as tight as it appears.
A new study by the Federal Reserve, however, offers little hope that Americans not currently in the labour force will suddenly start looking for work. This study argues that the low unemployment rate is an accurate indicator of labour-market conditions.
The study by researchers at the Fed's Board of Governors found the participation rate, the percentage of working-age Americans who either have a job or are looking for one, to be in line with its long-run, and now declining, trend.
They said that suggests the participation rate "is not artificially masking the extent of unemployment."
"The unemployment rate is providing a reasonably accurate picture of the state of the labour market," they added.
Some Fed policy-makers have said the current jobless rate suggests the US economy is already near "full employment." In this view, if the unemployment rate were to move down much further, wage-related inflation risks would rise.
Indeed, when the central bank's policy-setting panel increased their target for overnight interest rates by a quarter-percentage point to 4.75 percent on Tuesday, it renewed a warning that "possible increases in resource utilisation" could boost inflation.
After peaking at 67.3 percent in early 2000, the labour force participation rate declined to a low of 65.8 percent early last year. It has since risen only marginally to 66.1 percent, below where it stood for most of the 1990s.
If the participation rate were higher, the unemployment rate would be higher as well. For example, if it still stood at its 2000 peak, 2.84 million more Americans would be in the labour market and the jobless rate would stand at 6.5 percent.
The Fed study by staff economists Stephanie Aaronson, Bruce Fallick, Andrew Figura, Jonathan Pingle and William Wascher concluded that a combination of cyclical and structural factors lay behind the decline in the participation rate since 2000.
The authors said the "hot economy" of the late-1990s appears to have pulled people into the labour market, pushing the participation rate up. Many workers subsequently dropped out amid the 2001 recession and ensuing jobless recovery.
"However, important structural and demographic developments appear to have been at work as well," they wrote, pointing in part to the ageing of the US population and a levelling out of participation rates for young women.
"Most of the decline in the participation rate during and immediately following the 2001 recession was a response to business cycle developments," the said. "However, the continued decline in participation in subsequent years and the absence of a significant rebound in 2005 appears to reflect other more structural factors."
The researchers also said the participation rate was likely to move down further over time, meaning the pace of economic growth consistent with low inflation was likely to move lower as well, absent a pickup in the productivity of US workers. (The paper, to be published in the forthcoming volume of the Brookings Papers on Economic Activity, can be found online at: http://www.brookings.edu/es/commentary/journals/bpea_macro/200603bpea_aaronson.pdf).
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