After the Baby Boom: Population Trends and the Labor Force of the Future
Schiller, Timothy, Business Review (Federal Reserve Bank of Philadelphia)
Over the past 40 years, the baby boom generation's participation in the workforce and women's increased presence in the workplace have had a large effect on the American labor force and the nation's economic growth. But as the baby boomers start to retire in large numbers and women's participation in the workforce levels off, what effect will this have on the U.S. labor force and the nation's economy? More specifically, how will these factors affect the economies of the Third District states? In this article, Tim Schiller describes the issues associated with these and other demographic shifts and their impact on the local and national economies.
The U.S. economy has grown at an annual rate of around 3.4 percent, adjusted for inflation, over the past 50 years. An important factor in achieving that pace of economic growth has been an increase of about 1.7 percent annually in the supply of workers. This relatively rapid growth in the labor supply has been the result of two factors: the entry of the baby boom generation into the labor force, and the increasing participation of women in the labor force. Those two factors are now poised to fade, and labor force growth will ebb as a large cohort of workers reaches retirement age and as women no longer swell the ranks of the labor force. For output growth to continue at its pace of the past half-century in the face of slower labor force growth, workers' productivity will have to grow more rapidly.
A slower-growing, aging labor force will make it difficult to meet the need for workers in some major industries and occupations in the nation and in the Third Federal Reserve District. The issues associated with these demographic shifts are likely to be more acute in the tri-state region than in the nation because the region's population is older, the labor force is projected to grow more slowly, and the occupational and industrial mix in the region is more heavily concentrated in those jobs for which demand is projected to grow and the supply of workers is likely to be tight. Alternatively, the region's favorable mix of industries and occupations--it's concentration in education and health care--could give the region an advantage in attracting more workers to meet the growing need.
THE FUTURE SUPPLY OF WORKERS
To project the supply of labor, we need to understand the factors that influence the number of workers in the economy. The basic factor is the size of the working age population, which includes all those 16 years of age and older. They are not all in the labor force, however. Only a percentage of the working age population is working or available for work, and this percentage is called the labor force participation rate. It differs by age, sex, race, and ethnicity. So projections of the overall population are only the starting point for estimating the labor force. To estimate the size of the total labor force, we also need population projections by age, sex, race, and ethnicity and projections of their labor force participation rates. (1)
The Slowing of Labor Force Growth. The Bureau of Labor Statistics (BLS) projects a slowing of growth in the labor force, from a rate of 1.7 percent per year between 1950 and 2000 to just under 0.8 percent per year between 2000 and 2050. (For the BLS's projection methodology, see Projecting Population and Employment.) The slower growth projected for the labor force reflects both a decline in population growth and a decrease in overall labor force participation.
The BLS takes its population projections from the Census Bureau. And the Census Bureau projects that overall population growth will gradually slow from an annual rate of around 1.2 percent from 1990 to 2000, to less than 1 percent in this decade, then to less than 0.7 percent by the middle of this century. The Census Bureau projects that the fertility rate (the number of children born per woman during her lifetime) will increase slightly during the first half of the century, the death rate (the number of deaths as a percent of the total population) will increase, and the annual number of immigrants during the projection period will be similar to the current rate of around 1 million. …