A shortage of workers could soon be a major concern as more people drop out of the labour market, a central bank official has warned.

The participation rate – those in work, looking for work and ready to start work – is around its lowest level in eight years, Reserve Bank of Australia assistant governor Christopher Kent told a business function.

The soft job market had discouraged more and more people from looking for work, and an ageing population was increasing the number of retirees, he said.

Younger people are also studying for longer.

“In time it is likely that the availability of workers, not jobs, will be the main concern,” Dr Kent said.

“And in that world, one imagines that real wages might grow a little more rapidly than otherwise, in order to encourage participation.”

The RBA expects employment growth to pick up gradually over the next two years, with unemployment expected to remain elevated until later in 2015 when economic growth is forecast to reach an above-trend pace, he said.

Slow wages growth and improved productivity had helped Australia regain its international competitiveness, Dr Kent added.