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America's labor force has been in a state of flux for 50 years. The steady surge in women entering the workforce between 1950 and 2000 fueled the growth in the percentage of employed adults, called the employment to population ratio. But since peaking around the beginning of the millennium, the employment rate has been sliding down the back side of the hill, declining by about 4 percentage points between 2000 and 2020. Economists are rightly concerned about the trend.

The employment rate has fallen for every age demographic except one: older workers. Americans over age 60 were responsible for all of the increase in employment over the past two decades. In fact, they made up 101% of the job growth since 2000. And adjusting for population growth, the contrast is even more stark. Younger workers are dropping out of the workforce while seniors are piling in. What is going on?

It's complicated, but recent studies shed some light. A blog post by the Federal Reserve Bank of St. Louis broke down data from the Bureau of Labor Statistics to decompose total employment growth into two factors: population and the employment to population ratio.

The U.S. population has been growing steadily. However, the share of the population age 60 and up has grown much faster since 2000 than the rest of the working age cohort. America is aging and will continue to do so for at least the next decade. As the share of Americans over 60 increases, one would expect total employment among this group to increase as well. And so it has, but not proportionately.

The other factor, the employment-to-population rate (or just the employment rate) has skewed sharply toward older workers. Total employment among workers over 60 increased by 11.8 million in the previous two decades, while employment for ages 16 to 59 decreased by 112,000. Among the younger workers, the increase in population was more than offset by a drop in the percentage who held a job. For the Boomers, both population and participation increased sizably. The employment rate rose from 21% to 28% for the 60-plus crowd, while the youngsters' employment rate fell from 76% to 70% over the period.

The increase in participation among the 60-plus crowd is straightforward. A generational shift away from pensions to 410(k)s left many unable to retire comfortably. Also, life expectancies and general health among the older cohort have improved, and structural shifts in the economy have made experienced workers more valuable.

Explaining the departure of younger workers is more complicated. Two economists from the University of Maryland, Katharine Abraham and Melissa Kearney, surveyed the literature and identified several contributing factors. Number one, perhaps unsurprisingly, is China. Increased imports have led to the loss of U.S. manufacturing jobs, which tend to engage prime-age workers with moderate but specialized skill sets. Some of the displaced have either retrained for higher skill jobs or retreated to lower paying work, but many have simply left the labor force altogether.

The second most significant factor is called "job polarization" — the inexorable automation of routine functions and tasks that renders some workers obsolete. The United States has lagged in successfully retraining workers impacted by technology, and many have dropped out.

The researchers found a much smaller but meaningful contribution to the decline in prime age participation due to increased availability of disability benefits, allowing more younger workers to exit. They also found that higher minimum wages have led to some job eliminations, and that the systemic rise in incarcerations has obviated work as an option for some. Note that while measurable, these three contributors combined account for far less of the trend than imports and automation.

Perhaps just as interesting is what did not contribute. Contrary to popular conception, increased immigration had no meaningful impact. Neither, it turns out, did expansion of SNAP (food stamp) benefits, improved public health care access, or enhanced EITC subsidies.

The data did not incorporate the disruptions in the labor market from the Covid-19 pandemic, which are manifest. Time will tell whether we return to the declining trend, or if structural changes in the economy bend the employment curve back up.

Meanwhile, Boomers, break's over: back to work.

Christopher A. Hopkin is a chartered financial analyst.

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