CHAPTER 24

A Shrinking Workforce: Jobs and Work in the Twenty-First Century

In The Rise and Fall of American Growth (2016), Robert J. Gordon described a century of rapid economic growth fueled by technical innovations, one of the most important being the development of various forms of engines that created propulsion without the aid of moving water. That it was technically feasible to move goods off water, or to make goods without the power of moving water, had widespread implications for the U.S. labor market, including a decreased demand for human muscle. The new engines did work that previously required people and animals: tractors, and later trucks, replaced those original “teamsters,” teams of draw horses and mules. The engines displaced droves of relatively unskilled workers. The engineers of the day skilled in water-based propulsion and mechanical systems remained employed, but the real action, and income, was reserved for engineers that could get engines not powered by water to work.

The same kind of shift is evident today in the move away from mechanical to electronic devices. We still need people who can build and fix machines, but the real action is in electronics that didn’t exist twenty years ago. The divergence in skills as technology has evolved has mimicked that previous-era divergence in incomes when those with preindustrial labor skills didn’t see their incomes grow while those who knew engines did. The gap in incomes grew wider following the Civil War through the Great Depression, nearly seventy years of stagnant wages for a large segment of the U.S. economy. All the real wage growth showed up in a relatively elite segment of the economy that could manage the new technologies. Just as is happening today.

Bye Bye Boomers

In fact, hourly wages for low-skilled U.S. workers had started to move higher right before the onslaught of the COVID-19 pandemic. Gains were in large part tied to a strong economy coupled with a shrinking workforce growth rate brought on by the retirement of the so-called baby boom generation. The birthrate explosion in the decade following World War II produced a huge bulge in the workforce, but since the boomer birth years, generally considered 1946 to 1964, the U.S. labor force grew less rapidly (See Figure 24.1).

Figure 24.1 Labor-force growth peaked in the mid-1970s and has declined since.

Source: U.S. Bureau of Labor Statistics

Release: Employment Situation

Units: Thousands of Persons, Seasonally Adjusted

Frequency: Monthly

Persons 16 years of age and older. The series comes from the ‘Current Population Survey (Household Survey)’The source code is: LNS11000000

U.S. Bureau of Labor Statistics,

Civilian Labor Force Level [CLF16OV],

Retrieved from FRED,

Federal Reserve Bank of St. Louis;

https://fred.stlouisfed.org/series/CLF16OV,

October 31, 2020.

While the increasing rate of retirement of human capital is unique to the postwar period, other economies are experiencing the same shift. It is not yet history, not yet complete. We don’t know how it will impact long-term economic growth. But we do know that we get growth in the economy by adding workers, and by making workers more productive through investments in physical capital, human capital, and new technology. A slower pace of labor-force growth is likely to slow economic growth as measured by GDP.

Further challenging the economy is that the boomers are as a group relatively skilled, having accumulated a lifetime of experience.

In addition to slowing real output growth, maintaining the income of retirees will present challenges as the ratio of retirees to workers rises. There is real concern about the ability of institutions, both government and private, to meet their obligations with respect to the increasing number of retirees who will need to retain their share of income through their increasingly longer lives. It is a problem that wouldn’t have arisen had the labor force continued to grow at its previous pace. We’re in a difficult position at the same time the nature of labor demand is changing, which is increasing the bifurcation in the labor force, hollowing out a middle class that includes middle managers who were paid well for what is now considered rather routine industrial-style work in favor of workers skilled in emerging technologies.

Despite technology’s evident enhancement of productivity, the United States was functionally out of workers going into the 2020 recession. According to the Bureau of Labor Statistics, there were more active job openings than workers actively seeking jobs. The lack of workers was reflected in historically low unemployment rates. The only reasons for being unemployed were labor market frictions, that is, people with the wrong skills or in the wrong locations. The lack of needed skills was across the board, and the fact that the wages of low-wage workers were growing at a faster rate than wages on average was a clear indication that labor markets were tight all over.

The Immigration Wild Card

Immigration, both historically and today, is another labor force wild card. Despite the call for tired and huddled masses, the United States has gone through periods of being not so welcoming to immigrants, both to people who came unwillingly from Africa and Asia and willingly from European countries like Ireland and Italy. Our history is rife with issues of discriminatory practices and the related, ongoing social problems. Still, all those surges of immigrants added to our labor force and to the growth of the U.S. economy.

The in-migrations didn’t always perfectly match the expanding needs of the labor market, but they did make up for labor shortages in an economy that was growing rapidly. Today we again see a real bifurcation in arriving immigrants, from the high-skilled, highly educated to the lowskilled, poorly educated. Given our shortage of natively produced workers, both are finding employment—in different areas, but employment nonetheless.

While how we deal with rationalizing immigration policy is a twenty-first century political hot potato, it is not an unusual challenge for the United States. We have struggled with immigration policy for a long time, even though in many cases, most cases, the economy needed the additional workers.

The prevailing question remains: Will the United States address the slowing growth of its labor force with immigration or accept slower longterm economic growth?

Takeaways

Equilibrium

The growth of the labor force is fundamental to overall economic growth, but how we manage it is frequently problematic. Slowing rates of laborforce growth suggest that the tight labor markets of the late 2010s will be a recurring issue causing problems for firms that need workers, as well as for a relatively increasing share of the population that is retired and dependent upon existing workers to maintain their standard of living. As well, the changing nature of the labor being demanded has led to some income distribution issues, a not-so-uncommon occurrence in U.S. history. Immigration can be and has been a significant source of additional workers for the United States, but immigration is a complicated political issue and a common issue of debate.