Excessive wage rises could harm future job creation and slow down still further the downward trend in unemployment.
Government Ministers seized on yesterday's unemployment and higher than expected average earnings figures to preach the gospel of pay restraint, particularly in the manufacturing and private sectors, where the increases are running at more than 5%.
The figures showed only a small drop in numbers of Scots out of work. The seasonally adjusted number of those claiming unemployment-related benefits fell by 900 between March and April to 138,600.
On a seasonally unadjusted basis, unemployment fell by 22,000 over the year to January-March 1998 to 194,000 (7.8%), while employment rose by 40,000.
In England, seasonally adjusted figures showed the number of people out of work fell by 33,000 in the first quarter of the year, compared to the previous three months.
However, the figures were overshadowed by an increase in average earnings, which rose by 4.9% in the year to February, up by 0.3% on the previous month. Bonus payments of up to 30% were blamed on the figure, which is the highest rise in average earnings for almost six years.
Employment Minister Andrew Smith warned against a return to the boom and bust years of the early 1980s and early 1990s: ''Excessive wage increases will feed through eventually into lower levels of growth, jobs, and profits.''
A Treasury spokesman said: ''Again, private sector earnings growth gives serious cause for concern. While the public sector has understood the need for wage moderation, today's figures show again that private sector employers have some way to go.''
Scottish Industry Minister Brian Wilson struck a more optimistic note. ''The number of young people claiming unemployment-related benefits and the number of long-term claimants has fallen substantially.
''Employers across Scotland are supporting the New Deal initiative which is now helping the young unemployed off welfare and into work. The programme for the long-term unemployed aged 25 and over will be launched across Scotland in June.''
However, Alasdair Morgan, the SNP's industry, employment, and resources spokesman, said Chancellor Gordon Brown's economic policies were harming Scotland.
''Gordon Brown's 'high interest/high sterling' policy, designed to control overheating in the south-east of England economy, is doing real damage to Scotland, by squeezing Scottish manufacturing out of its vital export markets, and undermining tourism.''
Mr Michael Moore, Scottish Liberal Democrats' employment and industry spokesman, said: ''The strong pound and the fact the Scottish economy is so heavily reliant on inward investment means there will continue to be employers who cannot stave off major job losses.''
The Scottish Chambers of Commerce welcomed the ''modest drop'' but deputy director Douglas Millar added: ''The continuing rise in average earnings may damage growth in the economy and is a cause for concern.
Mr Alister Jack, Scottish Tory spokesman on economic affairs, said: ''These figures heighten our concerns the Government's mishandling of the economy has started to feed through and have a negative impact on jobs.''
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