Throughout this nation’s history, the economic labor supply has ever expanded. Above-replacement internal population growth coupled with new in-migrants have produced an abundant labor supply. Yet for the first time in our nation’s history, that labor abundance is endangered.

The nation’s aging Baby Boom generation will leave in its wake a legacy of not having generated a trailing labor pool of equal or greater magnitude. Couple this internal labor shortfall with a recent reduction in international in-migration and the nation finds itself on the cusp of an economic future with a diminished labor supply.

This decline dynamic is already in motion. The COVID-19 pandemic exposed the tip of that iceberg. This demographic pivot is the basis for the nation’s current labor shortage. The pandemic’s agitating force exposed its emergence.

National Labor Shortage

The forces producing the nation’s current labor shortfall began 60 to 70 years ago. It was then that the Baby Boom generation emerged.

Figure 1 is the 1960 population age trees for the United States and Utah. Both show a large Baby Boom base. The U.S. population then is nearly four-to-one pre-labor-age population to retirement-age population. The Baby Boom is of a sizeable mass, and the nation is about to experience a large injection of abundant, youthful labor.

The working-age population largely establishes the size of economic activity, which is symbolized by the national labor tree’s interior vertical lines (Figure 1). Yet with that Baby Boom generation poised to age upward, both the United States and Utah economies will need to rapidly expand to absorb and employ this upcoming labor. The Baby Boom generation is poised to make both economies significantly larger.

By 1980 (Figure 2), the Baby Boom generation has aged into the economy. The expansion is underway. Economies don’t expand overnight, so the unemployment rate runs high and unskilled labor is abundant. There is a contrast though, that is emerging within the Utah population profile. Utah’s Baby Boom generation is reproducing itself and then some while the United States’ Baby Boom population is not. That contrast is setting the stage for the nation’s current labor shortage.

By 2020 (Figure 3), the Baby Boom generation has stretched the U.S. economy to its fullest extent—the outer lines that it was destined to establish as viewed from 1960. But in order to maintain the economy at this expanded size upon the Baby Boom’s departure, there must be a sufficient quantity of trailing youthful labor. That is currently not the case.

An economy’s size is correlated with the available labor-force size. Labor produces for the economy, and purchases from the economy. Labor pushes the economy. With sufficient additional labor, an economy can grow. Conversely, an insufficient labor supply will pressure an economy to contract. If more labor ages out than in, the labor supply reduces. When such occurs, labor counts diminish. The initial stage announces itself in the economy’s lowest-skilled segment—the segment that is only asking for sufficient quantity, not quality, of labor. A shortfall in this labor backfill is what is currently seen in the United States economy. The pandemic acted to aggressively make this announcement.

Population Components

The overall United States population has largely reached no growth (Figure 4). Recently, the United States Census Bureau reported that the nation’s population only grew by 0.1% in 2021: “The slowest rate since the founding of the nation.” As a consequence of the Baby Boom generation’s aging and its size, the nation’s annual deaths are about to outpace annual births. That combination makes for population decline. Congruently, international in-migration has turned downward since 2016. Therefore, there is no counter from the outside to override the nation’s population decline from the inside.

Baby Boom Generation Still Influencing the Economy

The size of the Baby Boom generation pushed the United States’ labor market and economic output to its historical peak. A labor shortfall was destined to arrive once that generation started to exit from the economy’s production side. Many exiting Boomers are still around and spending money, sustaining the economy’s consuming side. But economic production needs to support economic consumption. In growing numbers, Boomers are no longer contributing to production yet are still pushing economic consumption. When demand (consumption) outpaces supply (production), a production (labor) shortage emerges. The pandemic pulled back the curtain on this drama.

Reaction Options

Main potential reactions to this demographic and economic wave include the following, each with its own array of nuances.

1. Incentivize the Baby Boom generation to work longer.

If successful, this is only a band-aid. Eventually, the Baby Boom generation will exit the scene.

2. Import under-produced goods and services.

When a nation’s economic demand outpaces its productive supply, consuming other nations’ output (importation is an option. But the pandemic unmasked vulnerabilities toward such an approach. Other nations determine their own production output. They too can fall under constraints, and transit and supply-chain movement between nations can also be interrupted.

3. Import labor into the United States from other countries.

Economic science employs a term called comparative advantage. Local economic structures tend to build around local economic endowments of strength. One United States strength has been its ability to attract other countries’ labor. Opportunity, reward, stable politics, and fair laws are some of this country’s labor-attracting qualities. Turning that labor tap on or off appears as a United States prerogative. It is the only short-term option available for maintaining or building up the nation’s labor supply.

4. Offset the declining labor supply with Automation and Artificial Intelligence.

This is a resourceful option for some industries, such as manufacturing. Automation can help to bridge the consumption-production shortfall and maintain, or even raise, living standards. But Automation will not buy vacated Baby Boom homes. It will not maintain the level of grocery stores, fill schools, or keep doctor’s offices open. It does not stimulate people-dependent industries.

5. Incentivize births in the United States.

If such an option were to take hold and begin immediately, it would still take 20 years before the lead aspects would support the United States’ labor supply. It is a long-term option for the nation’s labor shortfall.

6. Let the economy shrink.

This may be the easiest to achieve yet the hardest to accept. A downsizing economy seems anathema within capitalism. Enlargement, advancement, and increased earnings are capitalistic institutional aspects. Investments drive the spirit of capitalism. How does a stock market invest in downsizing? If this becomes the nation’s trajectory, some businesses will have to close. Future recessions will be the catalyst points for such a stepped-down approach, as recessions will expose the weaker businesses within the developing oversupply. Stock markets will be about anticipating and picking the survivors.

Outlook

Given the factors outlined, national labor shortages are destined to be the approaching economic norm, not the exception. In the past, “labor shortages” were spoken of only in the labor hierarchy’s higher and specialized-skill segments. “Offer better wages” was the prescribed solution. That worked when there was an ever-growing supply of additional labor. But with ancillary labor now drying up, the labor-shortage narrative has descended to the labor hierarchy’s lowest-skilled arena, a segment where bodies and not dollars are the solution.

Labor is a churning reservoir. It follows the money upward. This nation has always found an adequate supply of low-skilled labor to backfill this upward kinesis. The United States’ current demographic profile implies that such a backfill will lessen with time and shortly regress. Professionals will not be in short supply; manual and service laborers will. Labor shortages have rapidly descended from the labor-tree’s higher branches to its lower. Options are before us. They will be determined by the nation’s collective identification, understanding, and approach to this new labor dynamic.