Exit of baby boomers could lead to labor shortage
As the baby boomer generation retires, the U.S. labor force will grow more slowly, posing challenges for companies and the economy as a whole. In fact, businesses could begin to feel the effects of the demographic changes within a couple of years, according to a recent report from The Conference Board.
The report, "From a Buyer's Market to a Seller's Market," notes that the U.S. unemployment rate has fallen more rapidly in the wake of the financial crisis than it did after the previous two recessions, a development the report links to discouraged baby boomers leaving the workforce. The Conference Board estimates joblessness, at 6.3 percent in April, will decline to the natural rate of unemployment, estimated to be 5.5 percent, by the end of 2015. From that point, the U.S. labor supply will grow slowly for the next 15 years.
As the jobless rate declines, companies will boost compensation to attract and retain workers, said Gad Levanon, director of macroeconomic research at The Conference Board.
"I think we will eventually see faster wage growth as a result," Levanon said. "And the combination of higher compensation and lower retention rates will hurt the bottom line."
Not all jobs and industries will be affected equally. Companies should be using strategic workforce planning to figure out when they will need to replace employees and whether they will suffer labor shortages, Levanon said. Companies should also plan the process in which departing employees transfer knowledge to their replacements.
U.S. productivity and competitiveness could also suffer as a result of the changes, as U.S. workers struggle to produce not only what they need, but what's needed for the growing ranks of retirees. In a new book, "Thirty Tomorrows," Milton Ezrati points to the changing ratio of U.S. working-age people to retirees. That ratio stood at 8.1 in 1950 and 5.2 in 2010; it's projected to fall to 3.7 in 2020 and 3.0 in 2030.
Ezrati, senior economist and partner at money management firm Lord Abbett and Co., looks at a number of ways to address the problem: encouraging workers to retire later, getting more women to enter the workforce and allowing more targeted immigration. But he says the main solution is globalization.
"This relative labor shortage means we're going to have to export even more labor-intensive activities than we already have to the emerging economies," Ezrati said.
The U.S. economy can remain competitive by focusing on more sophisticated products while it relies on emerging markets, which still have an abundance of labor, to produce goods that don't require a lot of technology, he said.
Of course, U.S. companies have been sending work overseas for quite a while. "That part will happen on its own," Ezrati said. "What we do need is to help the people displaced from this, [and] retrain them so they can become a more effective part of a more high-value economy."
Companies' training programs are usually more successful than those provided by the government, he said. "Companies are beginning to train people in a more active way," Ezrati added. "But companies only train their own employees, so for people who have already been displaced, we need government efforts."
Absent such efforts to help displaced workers, support for protectionist measures may grow, Ezrati said, limiting the globalization that needs to occur.
- read The Conference Board's press release about its report on the aging U.S. workforce and a blog post by Gad Levanon
- read Milton Ezrati's blog about "Thirty Tomorrows," and an excerpt from the book
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