Today one may see fewer elderly Americans serving plates at fast food restaurants and working part-time at local department stores.
These disappearing employees not only make it difficult for the store to remove the “manpower needed” recruitment notice, but also make the high inflation level more difficult to control.
A recent BlackRock report stated that the number of elderly people over the age of 65 in the United States is growing and has reached retirement age. In addition, the proportion of these elderly people who do not return to work has reached pre-epidemic levels. This phenomenon has major implications for issues such as labor shortages and wages and employee utilization, as well as current and future inflation levels.
“An aging population exacerbates labor shortages, pushing up the cost of controlling inflation,” BlackRock analysts said.
Diana Swonk, chief economist at KPMG, told Fortune that from 1995 to February 2020, the labor force participation rate for people over 65 actually grew. However, when the pandemic hit, their participation rates dropped for a number of reasons, including the group’s greater vulnerability to the virus, Swonk said.
While the labor force participation rate has recovered from its plunge in the early days of the pandemic, labor shortages persist. Much of this stems from older people not returning to the workforce. According to the BlackRock report, as of October 2022, 1.3 million Americans (over 64 years old) have been removed from the labor force by regular retirement, and 630,000 people have left due to early retirement.
On November 30, Federal Reserve Chairman Jerome Powell said in a speech at the Brookings Institution that most of the current labor force participation gap is attributable to “excessive retirement”, that is, the number of retirees exceeds the number of people who are aging. Anticipation of retirement. Of the 3.5 million workforce gap, the excess retirement contribution gap exceeds 2 million people.
“Retirement rates among older adults are still rising, and they are not returning to the labor force in large enough proportions to effectively reduce the overall number of excess retirees,” Powell said.
While that may not be a huge problem, Swank said, the reality is that there aren’t enough young workers currently available to fully replace the baby boomers who are retiring and leaving the workforce permanently.
“These events are coming together, with an aging population, catalyzed by the pandemic, further undermining our ability to increase the number of working-age workers,” Swonk said. “We cannot fill the workforce void created by these changes without implementing major reforms.”
At the same time that the aforementioned gaps are creating a labor shortage, employers have been raising wages to attract and retain the workers they need, and simply forgoing their desired labor standards. BlackRock analysts also predict that Fed rate hikes alone are unlikely to resolve dilemmas such as labor shortages.
“Given the aging population, the U.S. economy will struggle to grow without prolonged inflation,” the analysts wrote. “Economic activity will need to operate at lower levels to avoid continued wage and price inflation, especially Labor-intensive service industries.”
Although the Fed said in the early days of the epidemic that supply chain problems and epidemic-related factors (not wages) were the driving force behind the high prices, Powell said on November 30 that this phenomenon has changed as inflation continues. “But it’s a matter of time, inflation has now spread to all aspects of the economy. Although I still think that the inflation we are experiencing currently has little to do with wages, in the future, wage growth is likely to become a very important factor for inflation. push hands.”
There are additional costs for aging baby boomers, including cost-of-living adjustments such as those that Social Security will implement next year. Ultimately, more than 66 million Americans will experience an 8.7% increase in income, Swank said. “This adds a new burden to an already heavy Fed,” she said, adding that the move could translate into a big boost to demand, which the Fed is struggling to keep down.
Unfortunately, there aren’t many simple solutions that can make a difference in the short term when it comes to addressing the labor force participation challenges posed by demographic issues. The most revolutionary solution is immigration reform, however, there is little interest at the federal level in modifying US immigration policy to provide more of the workforce. From 2020 to 2021, legal immigration has experienced a cliff-like decline. Although it has rebounded, it is still a drop in the bucket.
“From the geopolitical tensions we’re facing to climate change to extreme weather events and aging demographics and more restrictive immigration policies, even if [the Fed] manages to kill inflation this time around, it’s still going to be a big problem,” Swank said. All of this will make the world a fertile breeding ground for inflation. It also means that we will not return to the repressed, stagnant world of the 1910s, trying to emerge from the shadow of the financial crisis, but to a world full of ups and downs, full of A world of inflation and rate hikes.” (Fortune Chinese Network)
Translator: Feng Feng
Reviewer: Xia Lin
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,” BlackRock 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 KPMG, 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 shortcut 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 Powell noted during an appearance on Wednesday. Those excess retirements are estimated to account for more than 2 million of the 3.5 million-person shortcut in the labor force.
“Older workers are still retiring at higher rates, and retires 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 shortcut 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 BlackRockage, labor analysts predict.
“An aging population will hurt the US 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 US 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.
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