Since 2021, the economists at Lightcast have been reporting on the labor market’s patterns, first with a warning about the “demographic drought,” then with the 2022 report entitled “Bridging the Gap in our Labor Force” and finally with the September 2024 release of “The Rising Storm: Building a Future-Ready Workforce to Withstand the Looming Labor Shortage.”
Like weather forecasters, the experts at Lightcast, an organization specializing in labor market analysis, have tracked the patterns of the coming labor “storm.”
Ron Hetrick, Lightcast senior economist and co-author of the Demographic Drought series, warned of the labor force conditions that are ahead. “Over the next five to seven years, our labor pool’s growth will not match our population’s,” he said. “We will increasingly have more consumers than producers, driving price hikes and product shortages, if we don’t take swift action.”
Lightcast’s latest report takes its cues from meteorologists tracking major weather disruptions. “The report is structured like the path of a hurricane, starting with the conditions forming, the first gusts, and then landfall,” reads part of the introduction.
The report’s authors, Hetrick, along with Hannah Greiser and Tim Hatton, note that most people don’t understand the severity of the labor shortage or the unique conditions that have led to the impending 6 million-worker deficit predicted for the United States by 2032.
The factors affecting this deficit are multifaceted, but can be summed up into four contributing conditions:
• Baby Boomers’ rapid retirement. There’s a mass exodus of workers from the large generation born after World War II, with 80% of those leaving the workforce since 2021 over age 55, plus earlier retirement ages.
• A decline in the U.S.-born labor force. The U.S. labor force grew by more than 2% in the first half of 2024, but only because of immigration. During that time, the U.S.-born labor force lost 73,000 people, while the foreign-born labor force grew by 3.77 million.
• A decline in workforce participation by prime-age men. The labor force’s men are dropping out of the labor force, with the labor force participation rate for men ages 25 to 54 falling from 94% in 1980 to 89% in mid-2024.
• A mismatch between workers and available jobs. Trade, service and healthcare roles need workers, but those looking for jobs are not interested in or trained for those roles.
Developing conditions
We can track current workforce shortages to the U.S. birthrate spike after World War II, otherwise known as the Baby Boom. Between 1946 and 1964, the U.S. birthrate skyrocketed, peaking at nearly 27 per 1,000 in 1947, compared to a low point of sub-20 per 1,000 in 1930. We’re seeing rates even lower than that today, but that booming birth rate corresponded with tremendous labor force growth in the late 1960s and beyond, once those Boomers reached working age. Add to that an increase in working women, with the female labor force participation rate rising from 30% in 1948 all the way up to 60% in 1996.
This robust labor force meant that Boomers had to be educated and willing to make sacrifices, like working long hours and relocating for jobs, to remain employed. It also made Boomers suspicious of immigrants, with whom they were often competing to obtain or keep jobs.
Back then, employers had the upper hand. They could produce detailed job descriptions to get the exact candidates they wanted. They didn’t have to negotiate on pay, benefits or working conditions. They expected workers to be educated and specialized, and they didn’t put a lot into training and development. They also felt free to lay workers off when business was slow, knowing they’d be able to hire more when they needed them. But, as we know, these conditions eventually changed.
Today’s labor market
Since 2020, 5 million workers have left the workforce, and about 80% of those are over age 55. In short, the Baby Boomer workhorses who dominated the market are retiring, and some of them earlier than expected, since they’ve built up enough wealth to do so. More than half of Americans retire before age 65 these days, and when they do retire, they become consumers only of goods and services, not producers. These “old-age dependents,” as the report calls them, need the working population to produce goods and provide services. The labor force is not keeping up with population growth; from 2024 to 2032, population growth with outpace labor force growth by nearly 8 to 1.
It’s easy to say that retirements are a fact of life. We replace the old with the new. And that’s true, except the sheer number of Boomers retiring is hitting the labor market hard, especially when combined with a low participation rate for the next generation. In contrast to Boomers, Millennials are entering the workforce later, both because they may be financially supported by their parents and because they’re staying in college longer.
Prime-age men, defined as between 25 and 54, make up the largest portion of the working population, but their labor force participation is dropping. From 2007 to 2014, as many Millennials reached prime age, the labor force participation rate for prime-age men went from 93% to 88%. Millennials outnumber Baby Boomers in our population, but many Millennials aren’t filling jobs.
Two external factors affecting that low participation rate are addiction and incarceration. Drug-related deaths and incarceration disproportionately affect males in the prime age group. The report notes that 4.6 million Americans are taken out of the labor force because of addiction or incarceration, and the majority are men between the ages of 25 and 54. These addictions and jail sentences are more likely to occur in prime-aged men without college degrees — the demographic that’s most needed to fill available jobs in industries like construction, welding, carpentry and plumbing.
Boomers’ mindsets about education and competition have bled into the current generation’s viewpoints. Achieving a college degree has become a point of pride.
A 2022 Lightcast survey entitled “Who is Going to do the Work?” revealed that about two-thirds of high school graduates immediately enroll in a four-year degree program, yet Lightcast data shows nine out of 10 jobs with the most postings did not require a degree as of August 2024.
Topping that list of jobs with the most annual postings are counter workers, home health and personal care aides, cashiers, retail salespersons, and stockers and order filers.
The report calls the “great resignation” era, with job openings peaking at 12 million in March 2022, the “outer bands” of the labor shortage hurricane. As immigration numbers recovered, the job shortage subsided, but there’s still a significant labor shortage ahead. “The shortages and inconveniences of 2021 and 2022 gave the US an excellent glance into its future,” the report notes.
Future landfall
Looking into the next decade, the workforce faces a significant shortfall. The report notes that the Bureau of Labor Statistics predicts 6.4 million workers will be added to the labor force from 2022 to 2032, but nearly 60% of those will be over 65, leaving just 2.6 million prime-aged workers.
If trends continue, two-thirds of those prime-aged workers will have college degrees, leaving just 900,000 workers without a college degree through 2032, or about 90,000 each year. However, the United States currently has 850,000 job openings in the food, community service, and construction and home improvement industries — all jobs that require physical exertion and no college degree. As our population ages and people retire (many of them from high-demand jobs like home health aides and laborers) and need more services like healthcare, we’re going to need more workers in those critical fields.
The report names three options for filling the shortfall: women, immigrants and automation. While prime-age women (25 to 54) have reached a peak labor force participation rate, hitting 78% in April 2024, that growth has come from immigrants, not U.S.-born women.
What’s more, there’s a catch-22 in that, while women having babies now can support labor force growth in the coming years, having babies often takes them out of the labor force. Women with young children still have the lowest labor force participation rate among prime-aged women, despite an increase since the pandemic created more remote and hybrid jobs, and more schedule flexibility.
Finally, the jobs in high demand, like skilled trades, are male-dominated, and most women aren’t trained to do them.
Increases in immigration have kept the market afloat, with immigrants making up a large share of critical industries like construction and healthcare (one in four doctors and one in five nurses are immigrants). So, this is one place that can help fill the shortfall. However, the report also notes that the Congressional Budget Office expects immigration to drop from 3.3 million in 2024 to 1.1 million annually through 2054.
Automation, or artificial intelligence, may seem like a good avenue for replacing workers, but it’s not going to do it anytime soon, and it doesn’t apply to the jobs most in demand, like nursing, food service and construction, the report says. It’s the hands-on jobs we need most, and AI is better equipped for office-based professional sectors.
Lightcast summarizes its “landfall” section by noting that the Bureau of Labor Statistics predicts labor force participation will decrease to 60.4% by 2032, which is two percentage points below the 62.5% we’ve seen lately. The BLS also predicts a population increase of 7% over the same period, which means a lower percentage of the population will be working to support more people.
The implications of a 6 million labor force deficit in the next decade include fewer affordable homes, less manufactured goods, fewer retail businesses and higher prices for goods, restaurant closures, hotel shortages, longer wait times at hospitals and product shortages.
Adaptive strategies
The report did offer some strategies to prepare for the coming “storm.” They include:
• Society placing value on jobs without college degrees and encouraging college graduates to learn trades instead.
• Companies providing childcare options and flexible work schedules so more women can work.
• Government carefully considering the value of “creating jobs,” which has traditionally been valued, since office jobs could take workers away from essential jobs like firefighting, police and food service.
• Companies working to value and retain employees, and to be more open in writing job descriptions and screening applicants so they attract a bigger funnel.
• Companies focusing on training and development, as well as upskilling and reskilling to fill jobs.
• Employers managing turnover by
making sure they’re offering competitive wages and considering how to use employees during slow cycles, instead of laying them off.
