How Big is the Impact of Baby Boomer Retirements on the U.S. Unemployment Rate?
"American workers have endured six years of depleted wealth, stagnant wages, and general insecurity. But their fortunes are about to change, according to a surprising new study from The Conference Board. From a Buyer’s Market to a Seller’s Market predicts unemployment in the United States — currently 6.7 percent and falling rapidly — will reach its “natural rate” of 5.5 percent by late-2015. The decline will continue well past this benchmark; over the next 15 to 20 years, U.S. unemployment may even dip below 3.8 percent, the lowest rate recorded since the 1960s."
So begins a May 1, 2014 press release from The Conference Board, the non-profit organization probably best known for providing the Leading Economic Index® for the U.S. This hub presents some of the report's other key findings, not only as described in the press release, but also from the report itself.
Since the report is issued for the benefit of member organizations, of which my employer is one, I tried not to reveal too much detail from the report that wasn't already in the press release. So l have also supplemented the press release with statistical information provided by the U.S. Bureau of Labor Statistics. The more businesses that plan ahead and act to mitigate the situation, the better off all businesses will be. Knowing this is probably what motivated The Conference Board to issue their press release, which continues:
“While our conclusions may seem unlikely today, they rest on a simple fact: nearly all baby boomers will be out of the job market by 2030,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board and a co-author of the report. “As working-age population expansion slows to a crawl, even modest job growth should steadily tighten the labor supply and force wages higher. In the short run, this will be good news for workers. But it could also become a major handicap on U.S. growth and competitiveness, which we must prepare for now.”
Unemployment already dropping
According to the press release,
- Since 2009, unemployment decline has outpaced previous recoveries even as GDP growth lags behind. Meanwhile, wage growth, voluntary quit rate, and employers’ difficulty in filling positions are all trending up, suggesting the transition to labor shortages is underway.
The decline in unemployment is illustrated by the graph shown at the top of this hub.
Discouraged job seekers just a fraction of the flood of baby-boomer retirements
- Most of the millions who left the active job market during the Great Recession are unlikely to return. Many are retired or disabled, while “skill erosion” has made others uncompetitive in the eyes of employers. Thus the official unemployment rate is a broadly accurate measure of slack in the labor market, not misleadingly low as many commentators argue.
The following numbers from December, 2014, are from the U.S. Bureau of Labor Statistics:
Number in labor force 154,937,0001
Number unemployed 10,351,0002
Number discouraged 861,0003
A report by the Bureau of Labor Statistics entitled "Labor force projections to 2022: the labor force participation rate continues to fall" states that the number of people leaving the labor force between 2012 and 2022 should be just under 27 million, or an average of about 2.7 million each year. It also states that 35.4 million workers will enter the labor force during the same ten year period, or an average of 3.54 million each year. The net increase is about 850,000 workers each year, an annual growth rate of 0.5 percent.
1 United States Department of Labor Bureau of Labor Statistics Labor Force Statistics from the Current Population Survey, (Seas) Civilian Labor Force Level
2 United States Department of Labor Bureau of Labor Statistics Labor Force Statistics from the Current Population Survey, (Seas) Unemployment Level
3 United States Department of Labor Bureau of Labor Statistics Labor Force Statistics from the Current Population Survey, (Unadj) Not in Labor Force, Searched For Work and Available, Discouraged Reasons For Not Currently Looking
Chart showing numbers of discouraged workers
Ways businesses are likely to respond
By attempting to increase worker productivity
By attempting to increase hours worked by existing workers
By providing incentives for older workers to stay on where there are labor shortages
By cross-training existing workers in advance for positions that would be hard to fill
By moving more operations to cheaper areas, both inside and outside the United States
By shutting down operations that are no longer profitable under the new cost structure
Labor shortages could lead to rising wages, lower profits, and increased inflation
The report states, "The combination of higher wage growth and additional costs related to labor turnover is likely to affect corporate profits." Downward pressure on profits could lead to price increases, putting upward pressure on inflation. The report notes that there are several other factors affecting inflation, however, such as "energy and commodity prices."
Some industries will be more affected than others. Most affected will be those with the highest concentrations of older workers, and which have attracted fewer immigrants. "These include law enforcement, plant operations, and rail and water transport." Science and technology have higher percentages of young and foreign workers, and so probably won't be as hard hit.
The press release indicated that faster immigration growth and/or faster productivity growth could offset the effects of slow growth of the labor force. On the other hand, the U.S. Bureau of Labor Statistics, in the same paper mentioned above, projects that the U.S. economic dependency ratio, the ratio of the number of people not in the work force to the number of people in the work force, is going to go up, as illustrated in the chart below. Therefore an increase in productivity would be a really good thing.
Possible ways of both increasing productivity and reducing the economic dependency ratio would include providing incentives for healthy baby boomers to stay in the work force just a year or two longer. For many, being able to work shorter hours with lower income tax rates would be attractive. Others may want to work part time during times of peak demand, but that might not be an option where they work unless their employers' HR departments implement new programs, possibly assisted by new corporate tax incentives.
Chart showing the past and projected Economic Dependency Ratio
Links to The Conference Board Materials
- The Conference Board Press Releases
This link is to The Conference Board Press Release webpage. The press release referred to in this hub appears to be no longer available. These press releases are open to the public, as are many of the downloadable PDFs found in them.
- From a Buyer’s Market to a Seller’s Market:Declining Unemployment and Evolving Labor Shortages in th
This link is for downloading The Conference Board report referred to in this hub. It requires a sign-in, so you or your employer will need to have a membership. I was pleasantly surprised to learn that my employer had a membership. Yours might, too.
Links to U.S. Bureau of Labor Statistics
- Labor force projections to 2022: the labor force participation rate continues to fall : Monthly Labo
Article from Monthly Labor Review referred to in this Hub.
- Bureau of Labor Statistics Data
U.S. Unemployment Rate.
- Top Picks (Most Requested Statistics) : U.S. Bureau of Labor Statistics
Check the following boxes to retrieve the data referred to in this hub: Unemployment Rate - Civilian Labor Force - LNS14000000. Civilian Labor Force Level - LNS11000000. Discouraged Workers - LNU05026645.