01 May. 2014 | Comments (0)
Today, The Conference Board released a report titled, “From a Buyer’s Market to a Seller’s Market – Declining Unemployment and Evolving Labor Shortages in the United States.” In recent months, we have blogged about some of the material found in this report. In addition, Lauren Weber of The Wall Street Journal recently featured the report's findings in her latest article, Unemployment May Soon Drop to 3.8%, But Don’t Get Too Excited.
In this blog, we highlight some of the report's main findings:
1. Since 2009, the decline in unemployment has outpaced previous recoveries even as GDP growth lags behind. This is mostly due to the retirement of the baby boomer generation and weak productivity growth.
2. Most of the millions who left the active job market during the Great Recession are unlikely to return, either by choice or due to difficulty finding another job. In addition, “skill erosion” has made many of the long-term unemployed uncompetitive in the eyes of potential employers. Thus, the official unemployment rate is actually a broadly accurate measure of slack in the labor market; it is not misleadingly low as many commentators currently claim.
3. While it is hard to argue that the U.S. labor market is currently tight at the national level, it is expected to become tighter within the next two years. We predict that the unemployment rate in the United States — currently 6.7 percent and falling rapidly — will reach its “natural rate” of 5.5 percent by late-2015 (See Chart 1 below).
4. Meanwhile, wage growth, the voluntary quit rate, and employers’ difficulty in filling positions are all trending higher, suggesting the transition to labor shortages is already underway.
5. The decline in the unemployment rate will continue well past its natural rate; over the next 15 years, U.S. unemployment may even dip below 3.8 percent, the lowest rate recorded since the 1960s. While our conclusions may seem unlikely today, they rest on one simple fact: nearly all baby boomers will be out of the job market by 2030.
6. As the working-age population expansion slows to a crawl, even modest job growth should steadily tighten the labor supply and force wages higher (See Chart 2 below). For example, if employment grows as fast as the projected labor force growth at 0.5 percent per year — resulting in an unchanged unemployment rate — jobs would increase by a mere 50,000 per month. This is minimal compared to recent years where employment has been growing at a rate of roughly 180,000 jobs per month.
7. As the baby-boomer retirement mounts, wage pressure and lower retention rates will form a growing constraint on corporate profits, and, ultimately, economic growth. Seeking to improve the bottom line, companies may raise prices and move operations to cheaper areas.
8. Impacts will vary widely across industries. Those occupations in which older workers are concentrated — and which attract few skilled immigrants — will be at the highest risk of labor shortages. Some of these jobs, such as law enforcement, plant operations, and rail and water transport, may seem surprising in the context of labor shortages.
9. Conversely, relatively high numbers of young and foreign entrants should mitigate the effects of any potential shortage in high-growth fields such as science and technology.
10. A forthcoming report from The Conference Board will investigate the impact of retiring baby boomers on specific occupations in greater detail.
Sources: CBO, BLS
Chart 2 (Click on image to expand):
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