Aging boomers are making it harder to tame inflation—and there are no quick solutions in sight
S E E D E D C O N T E N T
Megan Leonhardt November 30, 2022
These days, you're likely to see fewer older Americans handing over your fast food order or working part-time at the local grocery store.
Those missing workers are not just causing the "help wanted" signs to linger, but are actually making it harder to tame sky-high inflation levels.
The number of older Americans over the age of 65 is not only growing and hitting their retirement age, they're also not coming back to the workforce in the numbers seen prior to the COVID-19 pandemic. That has major implications—not only for issues like worker shortages and compensation and employee leverage, but also for current and future inflation levels, according to a recent BlackRock report.
"Aging has worsened labor shortages, raising the cost of taming inflation," [hotlink]BlackRock[/hotlink] analysts report.
From 1995 to February 2020, the labor force participation rate among those over age 65 had actually been growing, Diane Swonk, chief economist for [hotlink]KPMG[/hotlink], tells Fortune. But when the pandemic hit, their participation rate dropped owing to a variety of reasons—including that this demographic was more vulnerable to the virus, Swonk says.
Although the labor force participation rate has recovered from the nosedive it took early in the COVID-19 pandemic, there's still a lingering shortfall of workers. And a good portion of that stems from older workers not returning to the workforce. Routine retirements have taken 1.3 million Americans (age 64 and older) out of the workforce as of October 2022, BlackRock reports. Another 630,000 have left because of early retirement.
The current labor force participation rate gap is mostly the result of "excess retirements," or exits above and beyond what would have been expected from aging alone, Fed Chair Jay Powellnoted during an appearance on Wednesday. Those excess retirements are estimated to account for more than 2 million of the 3.5 million-person shortfall in the labor force.
"Older workers are still retiring at higher rates, and retirees do not appear to be returning to the labor force in sufficient numbers to meaningfully reduce the total number of excess retirees," Powell said.
That perhaps wouldn't be an issue, except for the fact that there aren't enough younger workers to fully replace the sheer number of baby boomers who are retiring and permanently exiting the workforce, Swonk says.
"You really have this sort of collision of events of aging demographics that has been accelerated by the pandemic further undermining our ability to grow the prime-age labor force," Swonk says. "Without major reforms, we're just not going to be able to fill the hole that was left by those shifts."
That shortfall makes for a tighter workforce where employers have been upping wages to attract and retain the employees they need, as well as simply forgoing the desired staffing levels. And the Federal Reserve's interest rate hikes alone are unlikely to cure constraints like labor shortages, BlackRock's analysts predict.
"An aging population will hurt the U.S. economy's ability to grow without creating inflation longer term," the analysts write. "Economic activity will need to run at a lower level to avoid persistent wage and price inflation, especially in the labor-heavy services sector."
While the Fed reported early in the pandemic that supply-chain issues and pandemic-related conditions—not wages—were contributing to rising prices, that has shifted as inflation has persisted, Powell said Wednesday. "Over time though, inflation has now spread broadly through the economy. And while I would still say that the inflation we're seeing now is not principally related to wages, we think that wage increases are probably going to be a very important part of the story going forward."
There are additional costs tied to aging baby boomers, including cost of living adjustments like the one Social Security is set to implement next year. Essentially, over 66 million people are going to get an 8.7% raise, Swonk notes. "It ups the ante on the Fed at a time when they're already challenged," she says, adding that this likely translates to a pretty significant boost to demand when the Fed is trying to cool it.
Unfortunately, there aren't a lot of easy or short-term solutions that address the demographic challenges to the labor force participation rate. The biggest game-changing solution is immigration reform, but there's been little appetite at the federal level to overhaul U.S. immigration policy to provide more workers. Legal immigration fell off a cliff in 2020 and 2021, and while it's picking up again, it's still not enough.
"From the geopolitical tensions we face to climate change to extreme weather events to the aging demographics and harsher borders—all of that makes for a more inflation-prone world even after [the Fed] slays this one inflation dragon. Which means we're moving not back to the subdued, tepid, trying-to-recover-from-a-financial-crisis world that we were in during the 2010s, but to a much more boom-bust cycle punctuated by inflation and interest rate hikes," Swonk says.
This story was originally featured on Fortune.com
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Oldies are also the demographic voting gop...
Rick Scott's pontifications will change that.
He did good winning the Senate for the gop.
Oops!
I enjoy pointing out that fraudster. The Republicans need to clean out their anti-people people before they'll gain traction.
Lol ..... most boomers are at or past normal retirement age. Time for gen Xers and Millennials to stop whining, get off their lazy asses and get back to work.
Just do it.
We need foreign workers to grow our economy!
Exactly, many of our native born aren't willing to work.
Not for minimum wage ($7.25) they don't.
Better to stay in college on Daddy's dime...
and that is a big problem
Daddy’s dime, is that our student debt?
Well, Daddy's dime, your dime, my dime, taxpayers' dimes.
... as daddy gets pounded for 8/9% on a reasonably certain return.
Somebody else’s dime.
The liberal mantra.
Another liberal mantra.
"Keep wages low. Keep the poor poor. Cut taxes on the rich", the damn gop's mantra. .
”Work hard, get ahead, pay for lazy liberals to complain about the free shit they are or aren’t getting.”
Another Conservative reality ......
.Some liberal talking head told you that, and, man, did you swallow it hook, line, and sinker!
LOL!
Someday the US economy is going to have to deal with a shrinking population just like all of the other industrialized nations are doing on some level today. There is a limit to how many legal/illegal immigrants the other nations will have to offer in the near future.
Many foreign workers who went home during Covid decided not to come back because of the hate, resentment and danger they face here...
Exactly, very few immigrants want to be here.
Skilled foreign workers do not have to...
hope they do not come back
Which has what to do with the US economy adjusting to a shrinking population like every other industrial nation?
.
We must compete for skilled foriegn workers needed to grow our economy.
Just like Japan, Germany and Italy...
I agree, instead we’re taking in millions of uneducated, foreign speaking people from third world shitholes that cannot carry their own weight.
"Legal immigration fell off a cliff in 2020 and 2021..."
Visa programs are intended for that. The current immigration free-for-all has the opposite effect.
Canada has a immigration policy that makes sense.
Applicants in the skilled worker category get evaluated on a points systems that reviews specific job skill, levels of education, experience, and English or French language proficiency.
Well Joe and his minions have blamed everyone else for inflation. It was only a matter of time before their eyes turned toward the boomers. Now if they could somehow tie race into it.
Yup, that has been my main hypothesis. Retirees often leave jobs that must be filled. Filling those jobs leave lower jobs needing to be filled, etc. Ultimately, advancement opportunities are realized with the least desirable jobs going unfilled.