Sunday Digest #12
America’s tight labor market
The increasing number sf strikes, the military recruiting crisis, and inflation all have a common cause: a shortage of workers. The Boomer generation – a cohort produced in the post-WW2 euphoria – sharply increased their retirements during the COVID-19 pandemic. No generation since has been as large and the result is proliferating help wanted signs.
The Wall Street Journal gave a good overview of America’s labor market this week:
The U.S. economy has been running, improbably, with an unemployment rate under 4% for nearly two years.
That isn’t just a holdover from pandemic bottlenecks, when employers let millions of people go and then struggled to find workers when demand roared back, economists and business leaders say. It is a storm that has been brewing for decades, flaring up most recently in the form of labor fights at automakers and airlines. Labor shortages are turning into a long-term labor crisis that could push wages and turnover higher.
Work experts have warned for years that the combination of baby boomer retirements, low birthrates, shifting immigration policies and changing worker preferences is leaving U.S. employers with too few workers to fill job openings. While the labor market is softening, none of those factors are expected to change dramatically in the coming years.
Total employment will grow about 0.3% a year until 2032, the Labor Department recently projected, much slower than the 1.2% rate over the past decade, largely because of population constraints. That will contribute to slower growth in gross domestic product, the agency said.
The baby boomers were the largest generation of Americans, with 76 million children born between 1946 and 1964. They currently range in age from 58 to 77. By the end of 2028, even the youngest living baby boomers will have reached the average retirement age of approximately 64.
The next largest generation, millennials, numbered 62 million births in the U.S. from 1981 to 1996, per the Pew Research Center, but has grown because of immigration.
Baby boomers, who had been on a steady trend of working more years, pulled back during the pandemic. Many retired and haven’t returned.
The U.S. birthrate—the number of births per 1,000 people—has been falling for decades, declining by about half since the 1960s.
The share of people living in the U.S. who are in the labor force peaked at 67.3% in the first three months of 2000, when the oldest baby boomers were 54 years old and the youngest were 35. It helped that the U.S. was in the midst of an economic expansion, the first dot-com boom.
Participation hasn’t fully recovered from pandemic-era losses, though there have been signs of growth for prime-age workers—those between ages 25 and 54. The overall participation rate is expected to drop to 60.4% in 2032, according to the Labor Department, mainly because of baby boomer retirements.
Wages reflect supply and demand. They shot up during the pandemic recovery and have recently outpaced inflation, which gives workers more spending power. Long-term labor shortages could lead to a faster pace of wage growth for the foreseeable future.
Filling the void
Labor shortages can be eased by funneling more people into the labor force or making the current workforce more productive. That can be done through immigration; outsourcing more work overseas; tapping underutilized labor pools such as people with disabilities and the formerly incarcerated; and improving productivity through automation, training and refining business and production processes.
As a general rule, an economy is able to grow about as quickly as its workforce expands, plus any gains in how productive the workforce is. Productivity is difficult to measure, and in the past few years, the numbers have been muddled by shocks from the pandemic. Overall, productivity growth has been mostly lackluster, rising about 1.4% a year over the past decade.
Generative AI tools such as ChatGPT could help, but the technology is too new to know exactly where large language models can be reliably applied in business or work settings.
Offshoring, the scourge of the U.S. manufacturing workforce in the last decades of the 20th century, has lost favor with some business leaders after the pandemic highlighted the vulnerabilities of a global supply chain. Reshoring—bringing manufacturing back to the U.S.—is gathering momentum, backed by billions of dollars in government subsidies.
That leaves immigration. After falling during the pandemic because of Covid-related policies, immigration has come back strongly. But it remains a divisive issue, and business leaders say the lack of a coherent, stable policy is contributing to the labor problem.
Interesting chart
Prices for goods such as healthcare, college, and childcare have increased much more – indeed faster than inflation – than goods like software, TVs, and cellphones over the last 25 years. The commonality? Goods that have embraced technology have gotten much cheaper. The takeaway here dovetails with the tight labor market in the article above: embrace technology, like AI, to accommodate for fewer workers.
Media recommendation
I recommend the Netflix docuseries Spy Ops. It takes you behind the scenes into the trickery of the covert world over the last several decades.
There you have it, the twelfth edition of Sunday Digest featuring labor shortages, technological abundance, and the skullduggery of global security services. The portrait of a world spinning faster and faster. The good news is you have Netflix, Uber Eats, and running water. Until next time, be a good citizen, quit doomscrolling, and go outside.
Ad Astra Per Aspera!
