America’s Coming Demographic Crisis Is Bad News for Employers

Bing are now embarked upon. The Director of the Aspen Economic Strategy Group, Melissa Khanni, has a lot to say about that in a few minutes. She thinks we can do plenty with smart machines, but the engine of ideas and innovation is people. In recent years, neither the US, nor China, nor anyone else has been able to persuade women to give birth to more of them, quite the opposite.

That's a fascinating conversation. We also find out where the Harvard Star economist Raj Chetti has the data to explain how the US economy somehow lost two point six million workers in the past three years. All to come. The first Bloomberg Senior writer on economic Sean Donnan, has been to Ohio. Okay, I'm standing by the side of the road here in Licking County, Ohio, and I'm looking through

a chain link fence. There's a big no trespassing signs keep out SIGNUS has no drones, snow flurries in the air. And I'm looking through a chain link fence at some big grassy burns. I can just see the start of what is an enormous muddy expanse. And you wouldn't necessarily note at first sight, but that big muddy former farm field, it's quite literally the future of the American economy. That

at least is what Joe Biden is betting on. Thanks to what's billed as the Chips Act that he signed into law last year, the US is investing some fifty billion dollars in new semiconductor plans. And that muddy field in Licking County outside Columbus is the future home of a twenty billion dollar Intel project that will take some seven thousand people to build and house another three thousand workers when it's done. The future of the chick industry is going to be made in America, made in America.

But there's another big question hanging over that goal. Does America have the people needed to meet it? Katherine hunt Ryan is president of Manufacturing and Technology at contractor Becktel. She's the person in charge of finding the people needed to build that Intel plant, and she says finding seven thousand skilled construction workers is going to be drawing people from around the country to Central Ohio. That is significantly

outstripping the supply of labor in the local areas. It will be pulling on people certainly in the region and across the country in order to make that work, to make sure it has the three thousand workers it needs once the plant is built. Intel is investing a hundred million dollars of its own money in universities and to your technical colleges. It's also looking out of the world in which demand for semiconductor plants and the workers in

them is booming. That has created a competition for talent. It's unlike any scene in decades, says Gabby Cruz Thompson, the Intel executive in charge of collaborating with universities to build that workforce. I I think we haven't seen anything like this, this volume of interest, at this level of interest. Ever, like many industrialized economies, the US is in the midst of a big demographic shift as baby Boomers, that generation born in the wake of the Second World War leave

the workforce. That exit, which accelerated during the pandemic, is colliding with a dip in a number of young people entering the workforce. Then there's the effects of both the more than a million people lost during the pandemic and cuts an immigration in recent years. The US is working age population has in recent years been growing at its slowest rate since nineteen sixty, and in at least twenty four states, including Ohio, the total population actually declined last year.

There were five hundred thousand fewer babies born in America last year than there were in two thousand and five. That's when most of this year's high school graduates were born, which means that barring a major change in birth rates or immigration policy, there will be far fewer high school graduates available eighteen years from now. Gabby Cruz Thompson from Intel argues that automation and other technologies will help fill

the gap in the long term. I think it gets challenging, but I also we learn to leverage advances in technology. Right the advent of artificial intelligence. The workforce that we need to educate needs to be a workforce that learns to forever learn. Fab has less people today than it did twenty years ago. In the short term, though, Intel is investing heavily in institutions like Central Ohio Technical College

in nearby Newark, Ohio. The goal is to build that workforce there, and particularly the seventy of workers who won't need a four year degree to do their job at Intel. John Barry, the college's president, says helping Intel fill the vacancies it will have for those technicians on the factory floor is not going to be easy. The college is rapidly expanding its technology program, but that currently has just

a hundred and fifty or so students in it. Most of our students are part time, so even if you're going through a two year degree cycle, rarely does that happen in two years. That reality has led Intel in the college to work on a one year certificate that will help some students with experience in other industries qualify quicker. But the college also isn't just facing rising demand for

qualified chip technicians. The healthcare industry wants more nurses and radiologists, municipalities need more police officers and firefighters, And then there's the other manufacturers who want young workers able to operate robots. All in a world in which the college and manufacturers are competing with easy, low end service jobs that are often paying equivalent wages. Today's world order is bizar. There

is just no other way to describe it. Because in today's market, you think about this, I can go and get a job at literally the drop of a hat, and it's probably going to pay me eighteen to twenty an hour to do things that used to pay a ten. Catherine hunt Ryan, a contractor Becktel, says roughly thirty percent of the seven thousand construction workers on the Intel site will be apprentices. At least fort initially are likely to be so called travelers from either elsewhere in Ohio or

out of state. Altogether, to lure those workers who are also in demand and many other places where chip plants and electric vehicle or battery factories are going up, Becktel will be offering competitive wages. It also will be offering benefits like on site or nearby medical and dental care, and comfortable lounges for workers to take breaks. It's all with an eye on the long term and a fight for people that is only likely to get more intense

in the years to come. Forcing entertaining crop professionals is the long pole and attention. It is a significant challenge right now is not going to be solved through one program. For Bloomberg News, I'm Sean Donnin. I'd like to pull out some of the broader lessons of that piece now with the director of the Aspen Economic Strategy Group, Melissa Khanni, who has written about America's people problem in the group's new publication, Economic Policy in a More Uncertain World. Now, Melissa,

thanks very much for joining us. We're not only focused on demographics, and I know that that book on economic policy is talking quite broadly about the US and its economic challenges, but I think it would be good to start there. You know, what is the demographic challenge that the US is facing right now? The need for a robust workforce comes down to not just needing a large share of working age adults working, but it also comes down to needing a large number of working age adults.

And the problem that the US is facing is that birth rates have been declineing for a sustained amount of time now in the US, well over a decade, such that we now find ourselves well below replacement level fertility

for many decades. Women in the U s we're having more than two children on average per woman, and now that number is down to one point six six And so barring a large reversal in the decline in US birth rates or barring a large increase in the rate of immigration, in not too many years, the US working age population is going to start shrinking and whilst driving that slowing of the birth rate. So this is the big question, and it's actually harder to answer than we

might think. Looking at a lot of the sort of explanations that are commonly thrown around. Childcare has become too expensive, people have too much student debt, religiosity is declining. We don't see any data support for the those sort of common explanations, and rather what we see is just a widespread decline across almost all groups of women across the country,

across education level of recent ethnic groups. And so it just seems more like something universal such that young adults today are choosing to have fewer children than young adults

in the recent past. And it could be some combination of widespread perceptions about sort of how costly it is to have kids in terms of how much other stuff you have to give up, how much of your own like freedom, you have to give up, how hard it is to combine raising kids and having a career, something that's sort of been a slow universal change across women in the US in such a way that now women in the US are finally reaching up to women in

other high income countries who stopped having you know, two kids on average for person a couple of decades ago. Well, it's interesting is that the red birth rate is also coming with something that's been talked about a lot, especially since the pandemic, which has reduced labor force participation. America used to be much better than other countries on getting women into the workforce, but we seem to be less good at that now. So it's sort of odd in

a way that women are we were not. We haven't seen continued growth and women in the workforce, but they're also not having kids. So if this is really interesting, So if you look across high income countries, sometime between nineteen eighty and the relationship between fertility overall fertility and female labor force participation rates flipped. So it used to be in countries that had higher rates of fertility, they had lower rates of female labor force participation in general.

Like those two things were sort of substituting things that women could do. But if you work, working, you were having babies. Yeah, right right, And now what we see again across high income countries is basically like in all countries, about of women work, but the fertility rate ranges wide, like ranges a lot, and so it's you know, let's take Scandinavia. Scandinavia was always a place where it was perceived as being easier for women to combine work and

having kids. There was more egalitarian sharing of household responsibilities. There's obviously a really um comprehensive welfare stage, there's generous leave policies, and women there were having, you know, at high rates of work participation and also high rates of fertility. Even in those countries. Now, uh, fertility is way down. So so fertility in Finland and Norway is far below

what it is in the US. UH. And the thinking that we had to make it easier for women to combine work and having a family and that would keep fertility rates um elevated, that's all seemed to have come unhinged. Are there any proven ways in the rest of the

world for for increasing birth rates. No, and so we can learn a lot from other countries, and that because in other high income countries their fertility rate really fell below replacement level in the eighties and nineties, a lot of those countries have been experimenting with two types of

what's called them pro natalist policies. So one is like baby bonuses and tax credits, explicit government checks being sent to people when they had babies, and and often in explicitly uh, you know, ways to incentivize people having births. The evidence on those kinds of policies is that maybe some of them lead to an increase in births, small to modest in the short run, but none of them seem to have had a sustained effect increasing birth rates.

The other types of policies are things like expanding parent to leave, having more childcare, etcetera. There the evidence seems to suggest that there's not much of a link between um, longer paid leaves, and fertility in any persistent way, a more of a timing effect, if anything, nothing that would be of the order the size that would need to bring us back to replacement level. Japan has basically quadrupled the amount of their GDP that they spend on a

family friendly policies, childcare, early childhood education. Their fertility rate is still one point five, so far below replacement level, but it's sort of stalled out. My read of the evidence makes me very skeptical that policymakers can do anything it's going to turn things around. Um And so so in my mind, that sort of leads us to think about what are other ways we can replenish our working age population or keep the level of skilled workers at

a high level. And I guess the sort of leading way you could do it is just by taking other countries people through immigration. Yeah, at least that buys you sometime. Right at some point, like a lot of these host countries, their fertility rates are falling as well. Um. Again certainly in high income countries. Um. But yes, so immigration is the obvious way to bring in working age people right away. Um, and you know, even targeted, so you're bringing in skilled

working age people right away. But we know how complicated the issue of immigration is in the US, and so even while there might be obvious ways we could reform our immigration system so that we let in more people and we let in more skilled workers. That seems to be a very politically difficult thing to do in the US.

But just to give us a sense of the numbers, and you may not have these on the top of your head, but I mean, there was a there's been a long period where a good chunk of US labor force growth was coming from immigration, um and certainly quite a lot of the birth rate was coming from sort of relatively recent immigrants. How is that shifted? How is the immigration flows doing right now for the US or

the last few years compared to that previous period. So the annual that flows of immigrants has really fallen since right and some of that was a shift in our administration. Some of that than was COVID policy, And so we had over a million immigrants coming in the official numbers now or it's down to two hundred and fifty thousand,

So there's a real deficit of immigrants too. So it's it's really this combination of a reduction in immigration, a reduction in birth rates and arising death rate because the population is aging, has led to US population growth being at its lowest level in recent history. I guess we should remember because as we are partly thinking about sort

of competition between countries. The US is still relatively well off compared to China, which we saw just in the last week has its overall population shrinking, which is is different is in contrast to many other countries, they've had

a really extreme a graphic shift. And it's sort of fascinating when you think about how for how long China had a one child policy, and then you know explicit policy goals of keeping fertility rates low, family size small, and now they're trying to implement all sorts of policies and subsidies to increase the rate um and and it turns out it's not so easy to turn back on right now. That yeah, and I guess your your point from before about we've learned from other countries trying and failing.

You know, if this famously authoritarian command control country has still not been able to this is one thing that they can't force people to do, even with quite significant measures. That is, that is not a bit discouraging for those

who are trying to devise these policies. So I just want to shift a little bit because I know also that the book that the Strategy Group produced was thinking about not just this challenge that the US economy faces, but the challenge of sort of maintaining innovation um and also helping people through the sort of technological transition as we have AI and all these things. So I want to get onto a little bit of that. I mean,

because it's not just how many people you have. It is also about what they're doing and the efficiency they have and how they do it. How should we think about productivity and innovation in this context? If we've got few fewer people, we surely should be focused on getting more out of them. I should say, I generally like to be a half glassful and an optimistic person. But

I'm going to bile on here. So we've got this demographic headwins um, and on top of that, we've had, now for many decades, a decline in you know, prime age mail employment. And then on top of that, as you're alluding to, we've had a decline in productivity, growth and business dynamism in the US. So what do I mean by that? We have fewer firm entries and exits, we have fewer young firms as a proportion economic activity. We have a greater dispersion in productivity, you know, across firms.

So it's sort of like some market sector leading firms are are bigger, and there's just fewer, smaller dynamic firms that we usually think of as growth engines. Patents and investors are inclasingly clustered in large firms. So all of this is also it's also worrying and suggests that, you know, setting aside the issue of workers, we need policies and conditions and regulatory reform that really spurs innovation among firms. So there's both the workers side and the firm side

where received struggling. Do you think the administration is moving in the direction on that? I mean, there was this sort of much touted Chips Act last year, very focused on education and training for science and sort of industrial policy approach. We also had the ridiculously named Inflation Reduction Act, which is also going to try and encourage lots of investment in clean energies. I mean, do you think that the administration is kind of pushing in the right direction

on some of these policies. So yeah, So I think the sort of policy agenda from the past few years has been very encouraging in the sense that we also have the Infrastructure Bill, so investments in physical infrastructure sort of an obvious way for the US to try and increase our productivity UM and now, you know, industrial policy is famously hard to get right, and innovation policy is very challenging, so that it's often that the devils and

the details and those kinds of things. But an emphasis and a recognition that we need to be putting money towards building talent, investing in you know, training stem workers,

all of that I think is very encouraging. This also, I should say, before are all that UM as part of the Build Back Better proposal that you know didn't get enacted, there was a lot of investment in UM in youth and families and the kinds of stuff we were talking about earlier, like early childcare, early childhood education, and I have to say, UM, even though I don't think those things will meaningfully turn around fertility rates, investments in early childhood education are a clear way for us

to build up our talent pool. We just have mounds of evidence that you know that has long term effects UM and so so that was very disappointing that we weren't able to make progress on spending more money on kids because they also you know, are crucial built to our talent pool going forward. Now, okay, so I have

a question for you. As an economist, I mean the devil's world that kind of make formed last week, there was quite a loss of You can imagine these people who have cited about the US talking about industrial policy and investing in key industries and and and also thinking

about talent in a kind of long term way. But the big kind of negative that goes along with that is this much more nationalistic approach to policy and what you might call a zero sum approach to sort of international competition that it's you know, my gain is another country's loss, and vice versa. So how do you think about that? Because I see in your report there's a lot of the traditional economic view that openness and innovation

and trade is all. I mean, openness is good for being more productive um and those investment in the strategic industries. But it seems like we're going to invest in strategic industries but become less open. So how is that going to net out? Do you think? Yeah? So, you know, I struggle a lot with this As an economist, I truly understand the need to do more to protect US workers and and help the regions that have been hard

hit by previous transitions. So, for example, when we you know, in the US dramatically increased imports from China, you know,

that's great for most people, Prices go way down. This is a good thing, UM, But there were certain workers and certain regions that were hard hit, and our policies didn't adequately compensate those sort of you know, I hate to use the terms winners and losers, but you know what I mean by that, UM, And so I understand where the impetus for becoming more of a closed economy comes from. UM, but that's sort of a situation where

everybody will be worse off. And so instead, you know, in my in my view, which would be sort of a standard economist view, I think is we need to remain open to trade, we need to remain open to global talent, and yet we need to do more to make sure that the sort of disparate you know, impacts of those of those activities, that we take care of the people who are left behind or who need to transition to different industries, who need to you know, redevelop skills,

or just have their wages supplemented, or have some income support and so you know, I don't. I certainly don't think we should be doing things that lowers global innovation, raises US prices, and sort of makes us a less dynamic economy. Um, but I'm not, you know, just blase about saying no trade is good for everybody, and importing immigrants is good for everybody, and we just have to be honest about the trade offs, and our policies need

to reflect them. I guess the final question, it seems an implication of of of your work and the work of your colleagues that we should expect as we get older and as populations eventually shrink, that we will we might become poorer as well, because the productivity will be less from being a smaller economy. Is that really the case? I mean, I sort of like to think if we have all this golden age of robots, we might all

have superpowers and become very productive. Yeah, it's it's certainly not Um, it's not destiny, but it's uh, it's a possibility that we should be aware of and frankly a

bit worried about. And so this, you know, this idea comes from um, the economic insight that people are actually the engines of idea generation and technological and medical advances, and so there's just this idea that it's not just you know, one person creates one more thing, and so if you have one fewer person, well you have one fewer things. But it's okay because income per person's days concept.

The issue is if you have fewer workers overall, there's less specialization happening, there's less idea generation, and so actually what happens is income per person shrinks and living standards shrink. Now again it doesn't have to be that way, um, but that's a possibility. And so you know, if you know, you bring up, well, maybe robots can replace people and they can make these innovations. Maybe right, Um, so we might get richer, but the robots might be running the show.

That would be a bit unfortunate. Still being image there, all right, well that's a great image to leave our audience with. Melissa Carnie, Thank you very much, Thank you so much. Now, Sean talked about the long term forces which have helped produce these real time labor shortages in places like Licking County, and we're going to have more on that in a minute. Also some discussion of whether the Biden administration is doing the right things to help

us work has become more productive. But first I wanted to quit update on a shorter term mystery that has made the US labor shortage a lot worse since the pandemic, and that's the mystery of the seeing two point six million, that's roughly how many more Americans will be working or looking for jobs right now if the economy's labor force participation rate was the same as it was before COVID hit.

You know, it's a hugely important question for anyone wanting to know what's going to happen to unemployment or inflation in America in the next year. And it's also pretty crucial for any business owner who is short on workers now. One of the most celebrated economists of his generation, Raj Chesti, has weighed in with a pretty interesting answer, and Bloomberg Wealth reporter Ben Stephnman had the story in Business Week about it. Ben, thanks for doing this late notice. I

guess you should tell us quickly. First you know who rushed Chetti is and why the data he's used might be interesting in this context. Rush Jetty is a economist at Harvard. He has a research lab. They're called Opportunity Insights that he's founded with a couple of other academics, and he has really a team of people that pour through giant data sets two come to conclusions about what's happening in the economy. So he's done some great work on inequality over the years that has really got some

big headlines. But when UM, when the pandemic hit, he and the rest of his team, which was dozens of people, mobilized UM and they built what they called an Economic Tracker, which used private data UM basically transaction data from private companies UM that we're willing in that moment to offer them some data feeds, and they used that to build basically it was a online tool to track what was happening in the economy down to the zip code level.

And UM, this was really important in twenty if there was pandemonium in the economy, but we really didn't understand what was actually happening at the time. What we're talking about now is some new research using the same data set UM that really looks at where these missing workers are and and tries to use that private data in in another innovative way. And so where is that hole I mean I mentioned the two point six million are they what do we know about where they are in

the workforce? I mean, I guess geographically, but also the kind of worker they are. When they look at their employment data, they're finding a big shortage of low income workers. UM, basically a drop in the pre pandemical low income workforce. So one in five, one in five low income workers that we have in effective before COVID has just disappeared. Yeah, and it's that is that quite that bad? Because some of those people have moved up are now making more

money and are further up the income scale. But only about a third of the missing workers have been able to move up, and about two thirds are still the It just basically vanished. And um. They looked through a bunch of different scenarios and reasons why that might have happened,

and they test various correlations. But the thing that was the strongest predictor of a missing a place that had a missing worker was a place that had the strongest shock in And so this goes back to Chetty's research in twenty What he found was that the low income workers that were hit the hardest by the pandemic were the ones who worked in the highest rent areas. Basically, professionals, wealthy people, affluent people change their spending patterns very rapidly.

In March stopped going out and that caused this cascade of job losses and um business closures that impacted workers

who worked in those neighborhoods particularly. Of course, everybody was affected across the entire economy, but if you compare the Bronx, which is a low income part of New York City, to um wealthier parts of Manhattan, Um, the difference was really stark there um in terms of the workers up in up in the Bronx were still doing okay, I mean they were, they were affected, but in wealthier neighborhoods all across the country there was this devastation among low

income workers. And so basically to fast forward to or three years, what they found in this new research is that those are the places where the workers are most missing. And that suggests that something about actually losing your job in, and especially losing a low income job in, really scrambled

people's lives and through them out of the workforce. Is there any sense that these people will have gone into the informal economy that they're now in the sort of being paid in cash or just do we have any sense of that where they might be. Well that these are probably the hardest people to track in the in the United States. These are people obviously at the margins

of the workforce. Um. And so when I went out and did some reporting and tried to talk to people, I mean, there there were some interesting ideas, um that came back to me from business owners and from workers themselves. I Mean, one thing is that we're all three years older, um, since the pandemic happened. And you know, some of these low income jobs are really hard. For example, I talked to one person who worked in a kitchen. He he

he's now fifty seven years old. He's like, he liked that restaurant job that where he was working before, but the restaurants now closed, and he doesn't trust another restaurant job to be as good and easy, especially now that he's fifty seven. That's hard work. Um. So and then the other thing that seems to have happened maybe is that in these expensive areas people have moved so um.

You know, in a place like New York City, you might end up living an hour and a half by training your bus outside the city to get to your job in a place like the Upper West Side. Well, people just said, I'm not going to do that anymore. I'm going to move to North Carolina which is cheaper, or or or some other part of the country that's

that's the less expensive. It's interesting that you mentioned the age element, and actually, in a bit in in a minute, we're going to get into a bit more of than the implications of an aging population before I let you go, though, I'm interested. I mean that you've come back to it various times, this this puzzle, Um, and I wondered when you came away from this research and talking to the people that you talked to on the ground, what do

you think the lessons might be for the future. I mean, you know, obviously the FED is sitting there wondering whether any of these people are going to come back, and whether as a result, we might have a bit more room, um in the economy, in the labor force than it currently looks like. When you just look at that very low three point six percent unemployment rate, do you do you feel these people are going to come back or they're going to pop up in some other part of

the economy. You know, I think part of the problem here is that this is a long term problem of labor force participates in the United States. UM, it's especially for low income workers. UM, childcare, affordable housing has just gotten really difficult. The most economically dynamic parts of the country are the places that where workers are needed. So, um, it's hard for people to afford to go to a job.

And the reasons for that are long term. You know, there's not enough housing supply, there's not enough affordable childcare. And so this is this problem decades in the making, and it's probably going to require decades of policies that could could address that. And we basically need policies to create a labor supply increase in this country and get more for example, parents or sick people or older people

comfortable getting to get getting in the workforce. And that is a battle that many countries are raging right now. Ben Stephen, and thank you very much. You're welcome. That's it for this season of Stephanomics. We're officially back in April, but I have a sneaking feeling I might have some bonus interviews for you before then, so keep an eye on this feed. And of course you can keep getting informed on economic news and views, and much else on

the Bloomberg Terminal website or app. This entire series was produced by Yang Yang, Summer Sadi and Mangus Henrickson, with special thanks to Sean Donald, Ben Stevenman, Melissa Carney, and Kelly Friendly. Mike Sasso is the executive producer of Stephanomics