The workforce in the U.S. and other G20 countries is aging, hinting at long-term labor shortages even with job market fluctuations, according to a recent Moody’s Investors Service report. The report attributes the decline in working-age populations to falling birth rates and longer life spans. South Korea, Germany, and the U.S. are expected to experience the steepest declines over the next decade.
Labor Department data shows the job market is still resilient, with active “prime age” workers (25-53 years old). Their participation rate has slightly exceeded February 2020 levels, currently at 83.3%. However, the overall labor force participation rate remains below pre-pandemic levels, largely due to an uptick in retirements among older workers.
In the past 20 years, the proportion of Americans aged 55 and over has doubled, and this aging cohort is set to expand further. While many older Americans are working longer, retirement is still inevitable. The COVID-19 pandemic has accelerated retirements among older workers, with Moody’s attributing 70% of the labor force participation decline to aging.
Some sectors continue battling labor shortages. In particular, low-wage healthcare jobs, currently facing high demand due to an aging population, are seeing a dwindling supply. A Mercer study forecasts a potential shortfall of 3.2 million workers in this sector over the next five years.
Michael Madowitz, director of macroeconomic policy at Equitable Growth, warns that this wave of retirements could significantly impact industries reliant on expertise and “human capital.” Recalling the productivity slump in the 1970s and 1980s as baby boomers replaced retirees, he expresses concern about a similar “brain drain” in the future. This trend may push companies to devise strategies for retaining older workers, although this will not apply to all industries. Madowitz suggests that lower-wage employers, like fast-food chains, might opt for automation instead.