The Baby Boom generation is a topic that can yield volumes of data and discussion. As a group, they comprise a roughly 76 million strong explosion of the U.S. population that was born between 1946 and 1964. In the aggregate, the decisions they make, and the consequences thereof, are hugely important and have tremendous impact on our social, political and economic landscape.
I have been very interested in looking at the U.S. labor pool and how the Baby Boomers have left their mark on it. Using Quandl, I constructed a superset to track U.S. employment levels broken down by age groups.
My original intention for compiling this data was to look at how unemployment is affecting different age groups. Namely, I wanted to demonstrate that the older, more experienced, folks are having no problem finding work whereas the younger and less seasoned are really finding themselves in a difficult job market. This original endeavor was slated for a different discussion that is currently still in ‘Draft’ mode because after having a ‘Wow, look at that!’ moment I decided to reflect on these graphs a little longer instead.
There is just so much to ponder about these charts that I will jump right into it.
U.S. Employment Level & Baby Boomers: Act I-IV
The chart below clearly demonstrates the impact that the Boomers have had on U.S. employment levels. 76 million people did not just show up one day looking for work, they came in droves – in this case 4 distinct droves.
With the first Boomers being born around 1946, they did not reach working age until around the early sixties. As you can see from the chart, starting around 1965, there was a surge in employment for folks in the 25-34 year age range. That group dominated the labor market for about two decades. Around the mid seventies a new age group started to gain momentum and by the early nineties, the 35-44 year old Boomer was in control. As Boomers aged, so did the demographic that comprised the largest percentage of the employed population. By 2008 the 45-54 year old Boomer was the largest portion of the U.S. workforce.
There is a fourth, and presumably final, wave of Boomers that looks set to dominate the labor market for an unknown period. How early are we in this wave? When could we expect to see a peak? What happens at the peak? As I mentioned earlier, there is much to ponder over this graph.
Lets Go Shopping!
Just think about this graph in terms of who has been the U.S. consumer over the last 50 years. Starting in 1969, with roughly 60% of the labor force occupied by Boomers, to present, where the percentage is currently around 70%, it is interesting to think about what this group will be inclined to purchase as they progress into their later years. Will they buy more houses, cars, electronics, beauty products, take more trips, invest in their children’s future?
Who’s Going to Take of Me?
This is something that will most definitely be a hot potato in the coming years. Just as there was an explosion in population there will be a similar implosion in the number working age people available to work and pay into the social security system to support retiring Boomers. When social security was started there were roughly 33 workers supporting each recipient. That number today is less than one.
The chart below shows the population of the 65 and older crowd. As you can see there has been a more than 30% increase since 1965 and there does not seem to be any sign of slowing.
Naturally, if there are going to be more older folks then we should hope that the stock of younger folks is at least keeping pace if not growing faster. Take a look at the chart below and you will see that the 15-64 age group population has been stuck around 66% of the total population since 1980. Why?
Presumably, the Boomers have inflated this age group as a percentage of the population and have held this level for the last 30 years as they begin to age and transition into the 65 and older group. Why do I think that Boomers have inflated this age group? Because we have not seen the same rate of population growth since the 1960’s and in fact the rate of population growth has been trending down ever since. See the fourth below chart for a better illustration.
Convincing enough? The population of those aged 0-14 years has plummeted to a third of what it was in 1965; and the trend shows no sign of abating. As I asked before, who’s going to take care of these aging Boomers? Keep this chart in mind, as the next item to consider is related to what a declining population means for U.S.
This point touches on a related topic that is still in ‘Draft’ mode but is too important to leave out of this discussion. Academics, economists, policy leaders and even entire countries are seriously considering the very real threat of declining populations. This is not a forecast but a trend that is already in motion.
Several advanced economies are facing the immediate threat of or are already experiencing negative population growth. These economies include those of Germany, Italy, the UK, Japan, China and Russia. While the U.S. is not at the brink or past it as some of the previously mentioned are, the trend is not looking favorable. Take a look again at the above chart and you will see what I am talking about.
Again, this is a topic that deserves its own discussion so I only want to focus on one particular aspect – employment. What is going to happen to the labor market when a group that makes up more than 60% has decided to throw in the towel and retire?
We are still in a recovery from the 2007-08 recession and are currently looking at unemployment averaging around 7%. In economics, there is something called the natural rate of unemployment – which basically asserts that an economy can never actually have 0% unemployment. There will always be a certain percentage of folks who just don’t want to or cannot participate in the labor force. So the natural rate of unemployment is that rate at which there seems to be just enough work for just enough people. 5% has historically seemed to be what is considered the natural rate.
So if the U.S. economy is still in recovery with unemployment barely 2% away from the natural rate and the largest mass exodus of workers in recent history is already underway – what is going to happen to the labor market? Cue inflation – to what extent is outside of my forecasting abilities but inflation could be expected. If the labor market is unable to provide companies with the workers needed to design, make, sell and support their products then either companies will have to increase wages to attract more workers or make their existing workforce more productive. I am of the impression that while productivity gains will help, it will not offset the prospect of companies facing higher labor costs to meet their needs – and I do not expect that these higher costs will be easily passed onto consumers.
This could be a silver lining for that small group of young workers that will be left – higher wages. The same forces that caused a period of what I call wagflation are now poised to end the same.
There is indeed much to ponder over these charts.