Fewer working-age people can slow the economy. Does it raise wages?

Washington (AP) — Employers will not have an immediate opportunity to relax as the US job market recovers and the need for workers grows this summer. The labor shortage will probably continue for years after the rapidly resuming economy has shaken off its growing pain.

Think of last year that a number of working-age people did something they never did in the history of the country: it shrank.

The Census Bureau estimates that by 2020, the US population between the ages of 16 and 64 will decline by 0.1%. This is a slight decrease, but after decades of steady increase, it is the first decrease of any kind. This reflects a sharp decline in immigrants, the retirement of the vast baby boomers, and a declining birth rate. Last year, the death toll of thousands of people from the coronavirus also reduced the size of the 16-64 age group.

A year ago, in 2019, the working-age population was basically flat.

It is not entirely clear how the population pattern will evolve once the pandemic disappears altogether. But even if the working-age population grows again, it will almost certainly grow at the pace of anemia. A continuous decline, or even a slight increase in its population, will cause economic problems. Healthy economic growth has always relied on strong population growth to drive consumer spending, justify business expansion and drive corporate profits. Growth can stagnate without a significant influx of new workers.

Still, some economists foresee an individual silver lining. Fewer people of working age can force companies to compete more fiercely for the hiring and retention of their employees.And that could mean higher wages, better opportunities, and other incentives to retain and attract workers, trends Already revealed in June job report The government released it on Friday. The average hourly wage was faster than the pre-pandemic pace, a significant 3.6% increase over a year ago.

Manoi Pradan, founder of Talking Heads Marco, an economic research firm and former Morgan Stanley economist, said:

If wages rise sharply, it also increasingly divides the wealthiest Americans from everyone else, and low-income households struggle to pay rent, food, childcare and other essential costs. It can help narrow the vast inequality that has been left untouched.

As population growth slows, economic expansion depends on companies being able to increase worker productivity. Productivity gains, often through investments in labor-saving technologies, can raise wages even further. Even if the economy struggles to grow at what is normally considered a healthy pace, living standards will rise.

Brookings Institution demographer William Frey calculated that last year the number of legal and unauthorized immigrants entering the United States fell below 500,000 for the fourth consecutive year, less than half that of 2016. .. Deaths increased by 8% to over 3 million, primarily reflecting the effects of the pandemic.

The fundamental long-term resistance of the working-age population is the escape from the workforce of the huge baby boomers. According to Frey, the number of people over the age of 65 is likely to increase by 30% over the next decade.

“We have never been in this situation before,” he said. “It’s not just enough (young adults) to replace those who are leaving.”

The situation was exacerbated by a series of early retirements this year. Approximately 2.6 million people who worked before the pandemic say they are no longer looking for a job after retiring. According to the Federal Reserve Bank of Dallas.. Despite the severe pandemic recession, sharp rises in stock prices and home prices have made it easier for many older Americans to leave the workforce early.

One of them is Eli Lilly & Co in Indianapolis. Jeff Ferguson, a doctor at the company, retired in April at the age of 59 after working for the company for 22 years.

According to Ferguson, working from home during the pandemic made the transition smoother. But he was also encouraged by his solid return on investment and the strengthening of the local housing market despite economic uncertainty.

“Maybe it was a tailwind rather than a headwind,” he said. “If you were feeling a headwind, you might have delayed it.”

The pandemic also gave him a new perspective on life and retirement. Ferguson plans to travel the country with his wife, a pediatrician, to catch up with his relatives.

Gado Lebanon, an economist at The Conference Board, said the decline in the working-age population would be particularly apparent among Americans without a college degree. As the baby boomers reach retirement age, they are being replaced by young workers who are more likely to graduate from college. Fewer blue-collar workers — those without a four-year degree. This trend can lead to labor shortages in industries such as manufacturing, construction, retail, restaurants and hotels.

Lebanon predicts that despite the declining population, the number of college graduates will continue to grow by about 2% annually and the number of non-university bachelor’s degrees will decline. This can make it difficult for future college graduates to find a job that is commensurate with their level of education. Companies can also inflate their job requirements, such as requiring a bachelor’s degree in a job they didn’t need before.

“The number of people who are willing to work in blue-collar and manual service jobs is declining,” Lebanon said.

The wages of low-wage workers are already rising rapidly. For a quarter of the employee’s minimum wage, the hourly wage in May increased by 4.2% compared to the previous year. Atlanta Federal Reserve Bank.. This is more than double the rate of increase these workers received during the four years following the Great Recession of 2010-2014, more than a quarter of the wealthiest workers.

Scott Seaholm, CEO of Universal Metal Products, a 285 metal stamping company near Cleveland, is surrounded by an aging population and is desperate to focus young people on their manufacturing careers. About 59% of the population in Lake County, Ohio, was made up of working-age adults in 2015, according to Siholm. That percentage dropped to 57% last year and is projected to reach 54% by 2025.

“It’s pretty shocking,” he said. “No one works. It’s a little ugly.”

He said that more than half of the workers in his three factories were 55 or older and less than one in five between the ages of 20 and 34. He has one 81-year-old employee who is still punch-pressing.

Seaholm’s company belongs to a group that encourages high school students to consider working in a factory. He opens the factory to high school students once a year on “Industry Day” and invites his parents to come.

“They want Johnny and Judy to go on to college,” he said. “It’s all trapped in their heads.”

Globally, the workforce in most other countries is also aging, including China, which was once thought to supply an inexhaustible supply of workers. Japan’s population has been declining for 10 years.

Pradan said this trend could potentially benefit American workers. Since the end of the Cold War in the early 1990s, hundreds of millions of people from China, Eastern Europe and India have joined the global workforce, thereby reducing wages and prices for unskilled workers.

Today, many of the world’s aging populations have the potential to reverse these trends. Former Bank of England economists Pradan and Charles Goodhart said last year, “Reversal of demographics: an aging society, declining inequality, and a resurgence of inflation.”

Pradan states that in Japan, where the population has declined by about 1% a year in 10 years, economic growth averages only 1% per year. But that means that per capita growth is 2%.

If the United States can achieve that level of efficiency while the population grows by only 0.5% a year, the economy can still achieve healthy growth of 2.5% a year, Pradan said.

Still, over time, he and other economists are concerned that slowing population growth could mean lower consumer spending and less dynamic economics.

“Workers generate innovation and ideas and invent things. As the production age population declines, fewer people do it,” said Kasey Buckles, a professor of economics at the University of Notre Dame. It states.


AP business writer Anne D’Innocenzio contributed this report from New York.

Posted on