As the nation recovers from the pandemic-induced recession, finding workers to fill job openings has been a headwind for many regions and industries. Although many researchers have pointed to the sharp decline in labor force participation rates as an explanation, the role of population growth over time has received less attention.
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The first trend to watch is the effect of the baby boom generation on labor force participation rates. Age is a key factor in individuals’ labor force participation: participation rates increase as individuals move into their twenties and then start to decline much later in life as individuals begin to retire. Chart 2 clearly shows the influence from the large baby boom generation: as this generation started to reach their early twenties in the mid-1960s through early 1980s, participation rates increased. By the early 2000s, the oldest baby boomers had reached age 55, and lower participation rates among this cohort have since been putting downward pressure on overall labor force participation rates. This downward pressure may have temporarily accelerated during the pandemic, as many baby boomers may have retired earlier than planned.
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The second trend to watch is the slowdown in population growth over the past seven decades. Compared with participation rates, population growth has contributed more consistently to overall labor force growth from year to year. However, the size of this contribution has declined considerably since the youngest baby boomers reached working age. This declining contribution is due primarily to a trend toward lower birth rates. In the early 1950s, there were about 24 births per 1,000 people in the United States. By 2019, the birth rate had fallen by more than half to 11.4 births per 1,000 people. Looking ahead, trends in birth rates will play a large role in the size of the labor force, but migration is also a contributing factor to both population growth and the labor force. At the national level, international migration has contributed positively to population growth over time, though the pace of migration has slowed in recent years.
34 states have seen a decline in labor force participation, with Vermont and Nevada among the worst declines.
The unemployment rate should remain low for a long time to come. However, some economists think that to reduce inflation, unemployment must be pushed up by the government to at least 6%. They are applying the mindset of 1980 to the problem we have today – yes there is fiscal and monetary driven inflation, but we also now see labor cost driven inflation caused by a shortage of workers. Doubling the unemployment rate means reducing economic output (in the absence of lots more automation) which will make us all worse off.
Also see Demographic Trends Are Major Factors in Today’s Weak Labor Force Growth (clevelandfed.org)
Population growth is another key factor that influences labor force growth. One demographic trend that has slowed population growth is falling fertility rates. In the past, fertility rates were high enough that the size of the birth cohort, or the group of people born during a particular period, reaching working age was significantly larger than the birth cohort reaching retirement age. This led to natural growth in the size of the labor force. However, since 1972, the US total fertility rate has been at or below the fertility rate at which a population replaces itself from one generation to the next if net immigration is zero (Chappell, 2021 and World Bank, 2022). As a result, the size of the birth cohort reaching working age (roughly 20 through 29 years) has been converging with the size of the birth cohort reaching retirement age (roughly 60 through 69 years), thereby limiting the growth of the labor force. In fact, there were fewer people born in the United States between 1992 and 2001, or those who are now 20 through 29 years old (39.6 million), than between 1952 and 1961, or those who are now 60 through 69 years old (41.7 million).4
This ^^^ is incredible – since 1972! That was the era of The Population Bomb, The Limits to Growth, Small is Beautiful, Earth Day, the environmental movement – and the start of serial gadfly and luddite Jeremy Rifkin’s endless fear pandering (another comment here), and experts and media hysteria about population growth. Yet the tide was starting to recede in the 1970s – yet it would be, basically, 50+ years before the media would catch on to this fundamental fact – and that many of the experts were wrong for decades.
Afterward: As we saw throughout the pandemic, the projections of “Experts” and their models have been almost always wrong, often massively wrong. Gadfly’s like Rifkin have supported the notions of democratic Marxism and rule by technocratic elite – the elite who have been wrong about so much, but who have been given totalitarian-like power to rule over us. The experts have been effective at promoting the suicide of expertise.
