Why labor shortages could be here to stay

State of play: Declining fertility rates, and increasing life expectancy, is expected to lead to a drop in working-age populations across all G20 countries, according to projections cited in a recent report from Moody's Investors Service.

• "Korea, Germany and the U.S. are expected to see the sharpest declines over the next decade," Moody's states.

Driving the news: The job market is still going strong, per the latest nonfarm payrolls report from the Labor Department.

• So-called "prime-age" workers are indeed working. The labor force participation rate among those age 25–53 is now at 83.3% — slightly higher than where it was in February 2020.
• But overall labor force participation — that is the share of the total population either working or looking for work — is still slightly lower than where it was then.
• That's partly to do with more older workers retiring.

The big picture: The percentage of Americans age 55 and over has doubled over the last 20 years, as this 2020 paper notes, and that population (the baby boomers) is expected to grow.

• And while certainly many older Americans are working longer than ever before, they still do retire at some point.
• This was a demographic trend in place long before COVID-19 but was accelerated by the pandemic, which pushed many older workers into retirement.
• Moody's estimates that 70% of the decline in labor force participation since the end of 2019 was due to aging workers — about 1.4 million additional Americans retired.

What's next: Labor shortages, in certain industries, will likely ease up as the economy cools off, Moody's says. They note that mentions of the term "labor shortage" were overtaken by the phrase "job cuts" in the first quarter of 2023 — the first time since May 2021.

• However in certain industries, things aren't getting better. For instance, worker shortages in low-wage health care jobs — in greater demand as the population ages but with a lower supply — could grow by 3.2 million over the next five years, per a Mercer study.

What's next: More older employees leaving the workforce could particularly impact industries that depend on knowledge and expertise, "human capital," says Michael Madowitz, director of macroeconomic policy at Equitable Growth.

• When the boomers first entered the workforce and replaced older folks, the change was a drag on productivity in the 1970s and 1980s, he says.
• That kind of brain drain would be a concern going forward in the U.S., and could put a little more pressure on companies to figure out ways to hang on to older workers.
• Not all companies though. At the lower wage end of the scale, employers would be more likely to turn to automation. "Is this going to affect [fast-food chain] Jack in the Box," Madowitz says. "It's not."