While Main Street is keeping its fingers crossed for a solid jobs report Friday, some on Wall Street are worrying that a pickup in the labor market will hurt corporate earnings down the road.

Nokia's

(NOK) - Get Report

upbeat preannouncement Thursday served as a reminder that firing workers and keeping other costs low can reap big rewards, particularly when the economy starts to turn around.

But now that the job market is showing signs of life, some say labor costs will soon begin to rise and that corporate profits could take a hit after what is expected to be

a stellar fourth-quarter reporting season. On Friday, the employment report for December should show that 148,000 new jobs were created. The jobless rate is expected to hold steady at 5.9%.

"Equity analysts are looking for a Goldilocks report as the best outcome -- not too hot and not too cold," said Ethan Harris, senior economist at Lehman Brothers. "You want to see decent job growth, because you don't want ugly headlines out there scaring consumers, but as an equity analyst

or investor, you're hoping companies are not completely abandoning cost controls and aggressively adding to hours worked."

Some economists think a rise in employment this year will prompt a falloff in productivity, which in turn could hurt profits. Millions of job cuts have prompted a surge in per-employee output over the past year, with firms squeezing more out of fewer workers. In the third quarter, productivity surged at an annual pace of 9.4%, helping to boost profit margins.

"We may not see productivity maintain its very rapid rate of increase over the past 18 months," said John Lonski, senior economist at Moody's Investors Service. "But we still have low rates of capacity utilization and relatively high levels of unemployment."

Lonski said a jobless rate of 5.9% suggests there's still plenty of slack in the labor market. "You may have to get that unemployment rate down to 4% before you begin to have a problem with fast-climbing unit labor costs," he said, adding that profits aren't likely to be affected until sometime in 2005.

Diane Swonk, chief economist at Banc One, said that as long as the labor markets are loose and firms aren't paying premiums for workers, corporate profits should hold up going forward.

"The cycle isn't against profits, even as we begin hiring again," she said. "When you've got top line revenue growth along with really robust profits, you can afford to hire a few people."

The tradeoff between wage earners and the rich tends to be more acute when labor markets are tight, according to Swonk. "Back in the late 1990s, you had 20-year-olds making millions of dollars -- eventually that did undermine profits," she said. At this stage, however, an increase in employment shouldn't have much impact on earnings.

Harris believes corporate profits will rise by double digits this year, noting that the economy is still in transition.

"During the early stages of a recovery, workers are at a big disadvantage and wage pricing power is very weak," he said. "Firms are finally seeing a big increase in sales, but they're not seeing their costs go up. We're still in that phase."

Harris thinks the economy added 125,000 jobs in December and he believes the jobless rate inched up to 6%. He also expects wage growth to remain weak, with average hourly earnings up just 0.1%.

"Labor costs are still shrinking," agreed Lonski. "It's hard to imagine a situation arising soon where profits will be squeezed by an unanticipated jump in labor costs."

Lonski thinks nonfarm payrolls probably grew by 150,000 in December, with strength coming from a broad array of industries, including retail, business services and possibly even manufacturing. Last month, stocks sold off on news that payrolls grew by just 57,000. That was well below expectations for payroll growth of 150,000.