The U.S. unemployment rate went up slightly despite a half-million new jobs because the labor force grew by more than a half-million. That’s the sort of labor force report that we hear now and then. In the future, there will be a new wrinkle to all of these numbers: a shrinking potential labor force.
The working-age population in the United States has been shrinking, very slightly, since 2019. In November, the population between the ages of 15 and 65 fell below 205 million for the first time since 2015. In December, it fell again.
What explains the dropping working-age population? Immigration and COVID-19 are two factors. An underappreciated factor is the number of births.
A lot of births a long time ago explains the retirement surge. A dropping birthrate a little while ago predicts a future plummet in the working-age population.
For starters, 65 years ago was the peak of the baby boom — 1957 saw 4.31 million live births in the U.S. That was a record, and it would remain a record for exactly 50 years. In 2007, 4.32 million babies were born in the U.S. So, right now, a record class of old people is hitting retirement age, and a record class of young people is hitting working age. We also have excess deaths, thanks to COVID-19, and a fraction of those excess deaths comes from people under 65. The net result is a slight decrease in the working-age population.
But let’s go to 14 years ago — that’s when the current baby bust began. The Great Recession may have been the trigger, but the birthrate collapse didn’t end when things bounced back. Births fell every year for five years after 2007 and have never gotten back above 4 million. They have now fallen for six straight years.
So while our retiree class swells to unprecedented size, our working-age population will shrink at a record pace. This will allow for statistical oddities, such as a shrinking labor force paired with an increased labor-force participation rate.
Translated into normal language: We’ll have fewer and fewer potential workers, which will drive up wages, which will attach more people to the labor force, which will decrease family size, which will cause a shrinking labor force, and so on.
That is, the next few years are when the baby bust shows up in the workforce.
