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Addressing An Aging Workforce

By Cutright Elizabeth on Mar 23, 2017 in News

Born between 1981 and 1998, Millennials currently make up a third of the US workforce, but those numbers will need to rise exponentially in order to meet demand. According to the United Nations, the world’s advanced economies are experiencing a rapid decline in working-age population. The UN projects the available workforce to decrease by 5% within the next three years.

That decrease is due primarily to aging of the current labor force, which creates an additional burden for country’s with wage-based entitlement programs like social security. As the number of recipients for these programs increase, the workforce contributions struggle to bridge the gap. In 1945, the ratio of workers to retirees was 41.9 to one. By 2010, that number had dropped to 2.9, with the number expected to drop to 2-to-1 by 2030.

Ebbs and Flows

As the Baby Boomer juggernaut moved from childhood to young adulthood, lower birthrates followed in their shadow. For years, there’s been growing concern over what would happen once the boomer generation hit retirement. The smaller Gen X demographic averaged a mere 3.4 million births per year – or 65 million total – not enough to supplement the 76 million boomers born between 1946 and 1964.

Now it appears the tides are shifting. Sometime in April of last year, the U.S. population reached a significant milestone. For the first time in over fifty years, Baby Boomers no longer claimed the biggest portion of the country’s population. Hitting a high of 75.4 million, Millennials edged out the estimated 74.9 boomers to seize the crown. The Millennial population is expected to peak at 81.1 million by 2036 while the Boomers will shrink to 16.6 million by 2050.

Shrinking Workforce

With 83 million potential workers, the Millennials appear to be just what the global economy needs. Unfortunately, the simplicity of the numbers belies a more complicated reality. According to the UN’s 2015 Revision of World Population Prospects, two longstanding trends will make filling empty desks much more challenging: lengthening lifespans and declining fertility.

“By 2050, the world’s population will have grown by 32%, but the working-age population (15-64 years old) will expand just 26%,” states a Wall Street Journal overview of the report.

Populations and Productivity

In order to achieve economic growth, a country needs a robust workforce and sustained productivity. As the Wall Street Journal points out in its analysis of the UN report, shifting in demographics not only upend the size of the country’s workforce, it also changes the type of work available.

“As a population ages, what people buy also changes,” explains the Journal’s Greg Ip,” shifting more demand towards services such as health care and away from durable goods.”

Though the current administration promises to deliver 3% economic growth over the next decade, many economists estimate changes in GDP will hover between near 2%  based on the nation’s current population and projected productivity. As Ip explains, in order to hit that 3% mark, would mean, “Getting millions of Americans who have quit the labor force to return.”

“But it’s a tall order,” he concludes, “because the population is aging.”

Picking up the Slack

For the last 50 years, the proportion of worker-to-retiree has been almost inverted. When Social Security began in 1933, a small number of beneficiaries were support by a large pool of workers. By 1970, the proportion had somewhat stabilized at 3-1, but with the Silver Tsunami now cresting, the funding is dangerously unbalanced.

“As birth rates decline and the baby boomers retire, the worker-to-beneficiary ratio is on the decline,” explains Veronique de Rugy, Senior Research Fellow with George Mason University’s Mercatus Center. “The increased longevity of Americans only further compounds the problem,”

“The program was stable when there were more than 3 workers per beneficiary. However, future projections indicate that the ratio will continue to fall from two workers to one, at which point the program in its current structure becomes financially unsustainable.”

According to the World Bank, current US population growth is .8 and falling. With birth rates declining, employers looking to fill vacancies will look to automation and immigration. By some estimates, robots could cut up to 90% of the world’s current workforce, cutting labor costs by 65%. Artificial intelligence won’t just come for assembly-line work; a report from the McKinsey Global Institute estimates a reduction of up to $9 trillion in global wage costs “as computers take over knowledge intensive tasks.”

While robots may come to the rescue, Ip advocates for increased immigration, arguing immigrants not only bring with them much-needed skills (particularly those participating in the H-1B visa program for skilled workers) but that their youth can offset “the cost of pensions and health benefits for the soaring retiree population.”