The pandemic has caused a lot of disruption to the US labor force, with innovative forecast models not surpassing reference models in forecasting inflation. The security and soundness of institutions, the stability of markets and the fair and equitable treatment of consumers have been affected. Behind-the-scenes photos of the coin conservation process have been released, and Didem Tüzemen, a senior economist at the Federal Reserve Bank of Kansas City, has repeated a similar estimate for the US population level. The war between Russia and Ukraine and subsequent oil sanctions by European countries have substantially disrupted Russia's supply.
Labor demand measured by job offers or vacancies has started to cool down, but it is still high compared to pre-pandemic levels. While there has been a slight recovery in labor force participation rates since the start of the pandemic, current economic policies and government jobless welfare programs are holding back labor force participation. Today, people aged 65 and over make up the majority of the missing workforce, as their labor force participation rate has persistently remained below pre-pandemic levels throughout the recovery. The retirement of the baby boomer generation, which is expected to be fully retired by 2030, is responsible for approximately half of the decline in the pre-pandemic workforce.
Population growth is not the only demographic change that can influence the size of the labor force; population aging can also reduce its size, as older adults have persistently lower participation rates than younger adults. Secular (as opposed to cyclical) forces are cited as the main reason for the decline, mainly due to the start of retirement of the baby boomer generation. To take into account the effect of slower population growth, I build a counterfactual route for the workforce, assuming that the labor force participation rate in the United States has plummeted and has not yet fully recovered since the start of the COVID-19 pandemic. After taking into account the effects of slow population growth and population aging over the past two years, I estimate that there are about 2 million workers missing from the workforce.
People aged 65 and over make up most of these missing workers, as their participation rates remain persistently below pre-pandemic levels. In these calculations, I consider age and gender groups, since men and women in the same age group have very different labor force participation rates. The retirement of baby boomers born between 1946 and 1964 is responsible for approximately half of this decline in pre-pandemic workforce numbers. The labor force participation rate of people aged 25 to 54 has declined 2.2 percentage points since 2000.
This suggests that the labor force is shrinking due to secular forces such as population aging and retirement rates among baby boomers. Current economic policies and government jobless welfare programs are also contributing to this decline in labor force participation.