It's Time to Worry About the Looming US Labor Shortage
We are entering an age where we will praise companies for destroying jobs, not creating them.
The change in thinking we're going to undergo is shifting from a mindset of "we don't have enough jobs for our citizens" to "we don't have enough citizens for the amount of work we want to do." Sound crazy? Consider this: Since the end of the year 2000, according to the household survey, the number of US workers age 45 or older has increased from 49.2 million to 63.1 million, an increase of 13.9 million.
This phenomenon has been driven by a few factors. The "pig moving through the python" progression of the baby boomers, who on average turned 45 in the year 2000 and began moving from the 25-to-44 bucket to the 45+ bucket. The 2008 recession delaying retirement for older people and delaying careers for millennials. And generally lower birth rates starting in the late 1960s leading to fewer bodies replacing the baby boomers in the 20s and 30s age buckets.
Looking through the data, we can see how significant the aging of the baby boomers has been over time.
- The peak in the number of workers age 25-34 came in 1989, when the average baby boomer (born in 1955) was 34 years old.
- The peak in the number of workers age 35-44 came in 1999, when the average baby boomer was 44 years old.
- The peak in the number of workers age 45-54 came in 2007, when the average baby boomer was 52 years old.
At some point, however, even that growth will stop. Labor force participation begins tailing off pretty sharply as people hit their late 50s, and with the average baby boomer turning 57 years old this year, this will be felt in the workplace. The following chart shows the range in age for baby boomers along with its average age, using smoothed labor force participation rates from 2010.
Real value in long-term investing isn't figuring out the wiggles in tomorrow's price action, the recovery rate in Greek bonds, or nailing this quarter's GDP. It's thinking three to five years out, which most people in the active management community aren't allowed to do.
We have a domestic economy that appears capable of adding 250,000 or more jobs a month for the foreseeable future. At the moment we are fortunate to have enough slack labor to fill most of these positions, but what happens after a few years of labor absorption when the baby bBoomer retirement movement really accelerates? Will paragons of the baby boomer era like Citigroup (C), Bank of America (BAC), AT&T (T), and General Electric (GE), which combined have over 1.1 million employees, be able to find enough skilled workers to fill spots vacated by retirees?
The other issue is employment isn't evenly distributed across industries and geographies. I have never worked with anyone over the age of 55. I am sure that Facebook, LinkedIn (LNKD), Google (GOOG), and Apple (AAPL) aren't sweating the looming baby boomer retirement cliff.
But what about employers in government, health care, and education in suburban and rural communities, where older workers are concentrated? Who will step in to take those jobs and fill tax coffers to pay for the health care and pensions of retirees?
We're going to need a lot more automation and job destruction from tech and engineering companies. Foxconn using robots to replace up to a million workers is just the beginning, and needs to be.
Just as the recovery beginning in 1982 didn't benefit everyone equally and the recession in 2008 didn't harm everyone equally, the recovery we're undergoing now will have similar winners and losers. Changes in demographics and technology will be a huge part of the story. It's time we stop dwelling on the problems of the past several years and focus on building the future.
Also see: Employment Down? Why Not Teach Computer Science to the Masses?
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