15 Feb. 2017 | Comments (0)
For further analysis on the topic below, read our most recent major report on consumer spending in the U.S., available exclusively to TCB members.
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According to many indicators, the US labor market is already beginning to tighten. As we have written in the past, this is likely to be the typical labor market condition for at least 15 more years, as baby boomers retire in large numbers, leading to very weak growth in the working-age-population and, therefore, labor supply. In 2015, the ratio of the aged 20-64 population to total population was 59.6 percent.
According to the US census, this ratio in 2030 is forecasted to decline to just 55.8 percent. As retirees stop working but continue to consume, this smaller ratio of the population is leading to a faster slowdown in labor supply than in labor demand, and, consequently, to more labor shortages, other things being equal.
In this blog, we discuss how the drop in this ratio is likely to vary across states. In a recent TCB report, The Impact of Demographic Trends on Consumer Spending, we developed state level population forecasts by age. We use these forecasts to estimate the gap in the working age population-to-total population ratio in 2030 versus 2015 for each state. These results are shown in chart 1.
Chart 1: Change in ratio of people aged 20 to 64 over total population, 2015 to 2030 (Click to expand).
Source: The Conference Board
While we project this ratio to decline in every state in the nation, we also project large variation across states. The ratio is expected to decline by 7 percentage points in Maine and Vermont, but in Utah and Nevada, it will decline by just 2 percentage points. While labor market tightness will be determined by other factors as well, these results suggest that population growth trends are likely to tighten the labor markets in some states much more than in others.
If these current trends continue, many states, especially in the northern parts of the country, are likely to suffer from more severe labor shortages. In some of these states, such as Oregon, Idaho and New Hampshire, current labor market conditions are already tighter than usual. High risk of labor shortages is expected especially in health-related occupations given the age related demand for healthcare.
What are some of factors driving the drop in the ratio across states?
- The larger the share of baby boomers in current population the larger the impact of their retirement will be (See Chart 2 below).
- International immigration destinations and states that attract younger population are likely to experience a smaller drop in the ratio as immigrants and younger domestic migrants replace the retiree outflow from the labor market (See Chart 3 below).
- States where a relative large share of the population typically retires out of state are likely to experience a smaller decline in the ratio whereas retirement destinations are likely to see a larger decline, other things being equal.
How could states in the northern parts of the country limit the decline in this ratio? The most obvious solution is to somehow get more working age population workers to remain or move to the states that are more likely to suffer from labor shortages. History proves that this is easier said than done. The risk is that the balance between labor demand and supply will be achieved by businesses moving out of areas with low labor supply. Federal and state policy makers should take notice if they haven’t already.
In future blogs, we will discuss the implications of local labor market conditions on both employers and employees.
Chart 2: The share of people aged 55 to 64 in total population, 2015.
Source: Census Bureau and Haver Analytics
Chart 3: Immigrants who entered the US 10 years or less ago as a percentage of total state population, 2015.
Source: American Community Survey, 2015; IPUMS-USA, University of Minnesota, www.ipums.org
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