The cost of goods is rising and rising—Last year, 6.1%, according to government numbers released on Friday, Feb 25—and lots of ink has been spilled explaining why. Wage gains and higher savings in lockdowns mean that consumers have more cash. However, production has slowed down during the pandemic. Due to supply chain problems, it has become more costly to transport goods from one location to the next. Companies are increasing prices. Energy prices are on the rise, and they will continue to climb with the conflict in Ukraine.
But the simplest explanation may be this: because of long-term demographic shifts, the U.S., like many other countries, simply doesn’t have enough workers to make and move all the things that people want to buy anymore. Too many seniors have left the workforce and are not returning, while too few immigrants and young people are replacing them. There is 11 million job openingsThe U.S. has 6.5 million unemployed people right now.
“All of our gaps in the supply chain are because people aren’t there to make the goods. That is the issue. It’s a lack of labor,“ says Ron Hetrick, senior economist at Burning Glass, a global labor market data and analytics company that put out a report on Feb. 22, Demographic Drought – Bridging the Gap In Our Labor Force. Hetrick estimates that more than half the five million individuals who have left the workforce since 2020 early are aged 55 and older. The Census Bureau estimates that 3.4 million Americans will retire early.
This demographic shift drives up prices in all industries: transportation, manufacturing and construction. Post Holdings, Inc., the consumer packaged goods firm that holds brands such as Raisin Bran, disclosed in an earnings conference on February 4, that it had experienced both internal and outside labor shortages, driving up its product prices last quarter. United Airlines said in January that because of a pilot shortage, it was cutting services to around 20 U.S. communities—like many airlines, United saw retirements accelerate during the pandemic. Albertsons, a supermarket chain, claimed in its January earnings call, that due to labor shortages it was giving workers more overtime which resulted in some price rises.
The worrying part of demographic-driven inflation is that it’s not going away anytime soon. Last year, the U.S. population grew at 0.1%, its slowest rate since the nation’s founding, Census Data. Despite this, the population is still growing as the fertility rate drops. For the first time ever in U.S history, adults over 20 years old will be outnumbering children. Since 2007, the percentage of under-20-year-olds has steadily declined, going from 27% to 25% in 2007 and then to 25% in 2020.
Economists also thought that Baby Boomers— born between 1946 and 1964—would stay in the labor market for longer. High labor participation rates were driven by Boomers in the 1970s, 1980s and 1990s due to the large number of women who joined the workforce. And Boomers were workaholics, Hetrick says, so economists assumed they’d work until they dropped.
Instead, boomers decided to take stock of their financial situation and retire when the pandemic struck. The value of their houses had increased over time and the stock market had grown. So they decided to stop worrying about COVID-19 and take a break. According to the November report, 49.3% was the lowest expected probability of them working past age 62. Take a survey starting atThe Federal Reserve Bank of New York.
It might not have been such a big problem if there were workers from the rest of the nation to help fill in the gaps. In times of shortages due to demographic changes, historically immigration has been a way to boost the labor force. Since 2016, however, the number of immigrants has fallen. In 2021, net international migration was only 247,000. This is the lowest figure in over a decade. About one quarterIt was what it was in 2016.
“Falling immigration had already started happening, but it was worsened by COVID,” says Hetrick. “Baby boomers were already starting to retire—but COVID could not have come at a worse time.”
It may be difficult to reverse these numbers, especially because trends of declining birth rates and aging populations aren’t unique to the U.S. Other countries that have typically provided the U.S. with workers, such as Mexico, also have historically low unemployment rates. It may be that the economic situation in some countries which have long attracted immigrants to America is not as bad as it used to be. Immigrant policies that are strictPeople cannot migrate to the U.S. because of the Trump Administration’s policies.
U.S. customers are spending like nothing is changing, so the demand for goods or services remains high. According to data from the most recent report, Americans spent $337.2 Billion in January. This is 2.1% more than December.
New Hampshire and Pennsylvania have already begun to see the problems that a growing population can cause for their workers. These are states that are already “super-aged,” meaning that 20% of the population is 65 or older, a designation the entire U.S. will reach in 2028. They’re already facing big labor shortages because of retirements and a lack of workers.
“We’ve been trying to recruit for six months, but virtually no one who is applying is qualified,” says Julia Griffin, the town manager of Hanover, N.H., who is trying to hire a senior planner, two building inspectors, staff for after-school programs, and a zoning officer, among other positions. “We have an unusually high number of vacancies,” she says.
Griffin says she knows she’s going to have to increase wages and benefits to attract more applicants, but taypayers will push back on higher costs. Worried that the town won’t have anyone to plow the roads down the line, she started researching autonomous snow plows. (They don’t yet exist.) Some residents are themselves quitting jobs because they can’t find programs—like after-school programs—that the town would have put on in the past, creating a vicious cycle of a shrinking workforce.
This is just the beginning of a demographic shift that’s going to play out in the economy for the next few decades. The demographic shift has many implications, including housing, health care and eldercare. At the moment, the biggest impact of demographic shifts on consumers is likely to be felt in their wallets.
“Every economist I’ve heard who says, ‘inflation is going to last this long or that long,’ I say, ‘Do you have a crystal ball that tells you exactly when these people are going to come back to the labor force?’” Hetrick says. “If we do not get the Boomers back, and immigration does not improve, I’m just telling you the math—I’m not sure how we get back to growth.”