With the labor market supposedly at its tightest level in nearly 20 years, employers for a mix of low- and high-skill jobs have been struggling to fill positions. It's become such a problem for some companies - mainly small- and medium-sized businesses - that it's beginning to impact how they approach hiring. As we learned most recently with the release of the May Beige Book, many employers are "relaxing" drug-testing standards and changing policies related to the hiring of felons.

Even at a time when small business confidence is at or near record highs, one anecdote submitted for the Beige Book by the St. Louis Fed showed that some employers are having such a hard time finding workers that they have begun recruiting in jails. And as it turns out, they're not alone. CNBC on Friday ran a story about how the unusually low unemployment rate and labor participation rate are creating all this tightness.

"Contacts in Missouri and Arkansas also reported difficulties filling skilled technical and engineering positions. Some local employers have begun relaxing drug-testing standards and reducing restrictions on hiring convicted felons in order to alleviate labor shortages," the Beige Book said.

In Manitowoc, Wisconsin, local businessman Mike Fredrich is having trouble finding workers whom he can train to control these unmanned presses in his shop. His business has gone "to extremes" to find employees, including interviewing candidates in local jails.

"There are no workers, but there's a huge demand. The economy has picked up, but the market is so thin, that we just can't find them. We've gone to extraordinary means to find people that will actually work, including going to the local county jail and recruiting people to work from inside the jail," Fredrich said.

The "Main Street Labor Shortage", as CNBC bills it, is increasingly becoming a problem for companies, and is one way that a strong economy can "cut both ways" for businesses. The pinch is being felt across industries and skill levels.

In fact, according to the National Federation of Independent Businesses' monthly read on sentiment, labor quality is the number one issue for companies for five months in a row, outpacing taxes and government regulations and red tape. In May, one-third of small-business owners reported job openings they could not fill, and 12 percent reported using temporary workers. [...] "Finding the right person for the job is always a challenge, but obviously in a tighter market like this, it becomes far more difficult," said Raymond Keating, chief economist at the nonpartisan Small Business & Entrepreneurship Council. "It's a function of a few things — the labor participation rate is fairly low for an economic recovery expansion period. So there's room for people to come back into the labor force. And, as long as economic growth continues, which we want to happen, we are going to have to deal with some tight labor markets."

One small business owner pointed out that larger companies who can afford slightly higher pay are muscling out smaller firms, which he says are having serious trouble recruiting skilled people.

Bob Treiber, president of Boston Engineering, a 65-person consultant group in Massachusetts, has 12 open positions for engineers and project managers. But competing with larger businesses for qualified applicants has proved challenging. "I think it's easier for larger businesses to make a bigger splash — it's easier for them to get attention from new hires," Treiber said. If he can't find the right people, the company's bottom line will suffer. "If we can't staff the jobs, we can't satisfy the demand of our clients. There's only so much we can do with temporary-type resources. You really need to have the core people in here in order to deliver the quality our clients demand," he said.

Another small business owner says he really only has one requirement for workers nowadays. "What they need to be able to do is come to work on time every day, pay attention to what they're doing, take instruction well, and just put in an honest day's work," he said.

While that seems nice and all, we've heard that being high on the job can affect workers' memory and attention span.