Diana Elliott, Vice President for U.S. Programs
Recent headlines decrying a worker shortage in the United States rely on simple narratives: “Disengaged workers!” “Difficult bosses!” “Too little pay!” While reflecting an element of truth, these reports miss the many complex factors that make the story of our current labor force a challenging one to tell.
When we want to understand the labor market, we typically seek the expertise of economists. But demographers are also important voices in this narrative. The labor force is made up of people, so understanding the changing dynamics of the working-age population can illuminate the challenges.
So, let’s break down the labor force from a demographer’s perspective. What can data about people—births, deaths, aging, and migration—tell us about today’s labor force challenges?
The average American grows older every year. Between 2000 and 2022, the median age in the U.S. increased by 3.4 years, and it’s expected to keep rising. Consequently, the share of working-age people (ages 15-64) in the U.S. population has shrunk, down to 64.9% in 2021, from a peak of 67.3% in 2007. In addition, the share of people dependent on the working-age population has grown since 2010 —a trend that shows no signs of slowing.
Aging baby boomers are having an outsized impact on the U.S. age structure. Baby boomers were born between 1946 and 1964, when births in the country spiked after World War II. In the single year from 1945 to 1946, over a half million babies were born.
Now, those baby boomers are retiring. As of this year, the youngest of them will be old enough to access their retirement savings, and most can claim Social Security. While not all baby boomers will retire, 90% will have stopped working by 2030.
Meanwhile, birth rates have dropped. Since 2007, the total fertility rate in the U.S. has been well below replacement, and has mostly steadily declined since. That means today’s 15-year-olds—those entering working age—were born at the start of an era of fewer U.S. births. So, we are entering a prolonged phase where there are fewer young Americans to replace those retiring.
Another consideration is rising mortality rates among working-age Americans. Since 2010, death rates have risen for both young and older adults, driven by drug overdoses, alcohol, suicide, diabetes, and obesity-related health conditions. COVID-19 further exacerbated this trend, spurring an estimated 58 excess deaths per 100,000 people ages 15-64 in 2020 alone.
Further, long COVID continues to affect labor force participation. One study estimated that 1.6 million full-time workers may be missing from the labor force due to lingering effects from the illness. People with disabilities generally have lower labor force participation—whether because of discrimination, lack of reasonable accommodations, or other reasons—and in 2021, 10.1 million Americans with disabilities were not in the labor force.
Immigration fuels growth in the U.S. population, and it will be even more important in the future. Between 2010 and 2018, immigrants and their U.S.-born children made up 28% of all U.S. workers and contributed to 83% of labor force growth. Further, foreign-born women have higher average birth rates than U.S.-born women, contributing to the growth of the next generation of workers.
This growth has been stalled in recent years by immigration policies that have created systemic backlogs. The COVID-19 pandemic contributed to additional delays in processing applications, as well as border restrictions from 2020-2021 that nearly halted international movement.
There are signs international migration is picking up again. The U.S. added a little over 1 million people between 2021 and 2022, and immigration was the primary reason for population growth in 2022. This may not address short-term worker shortages, but it could help with future growth in the labor force.
The core demographic foundation—birth, death, and migration—all contribute to our understanding of labor force dynamics. But policies also matter. The United States is notable among its peer countries for its lack of family-friendly policies, which limits full labor force participation. Amidst the COVID-19 lockdown and resulting child care and school closures, many working mothers had to leave jobs to care for their young children.
Employer policies matter, too. The end of remote work may strain people with disabilities for whom opportunities expanded. Hiring policies, such as those that exclude justice-involved people, further limit the pool of available workers.
Why should we care about the demography of the labor force? For one, officials driving economic and monetary policy in the United States pay close attention to unemployment measures in their decision-making. Understanding long-term population dynamics is critical for such decisions. For another, payroll taxes contributed $1.3 trillion in 2021 or nearly one-third of all revenue to the federal budget. This includes Social Security; 90% of what was paid to retirees in 2021 was funded by payroll taxes collected from workers. And, while in 1960 there were 5 workers supporting every retiree on Social Security, by 2040, there are projected to be just 2. A declining working-age population jeopardizes the financial health of the country.
To fully understand labor force dynamics, we must remember that the economy is driven by people. Without a growing pool of workers, the labor market could be tight for some time.