Why America Has a Long-Term Labor Crisis, in Six Charts

Work experts have warned for years that the combination of baby boomer retirements, low birthrates, shifting immigration policies and changing worker preferences is leaving U.S. employers with too few workers to fill job openings. While the labor market is softening, none of those factors are expected to change dramatically in the coming years.

“It is a talent supply chain and you have to think about it that way, except in this case, talent has a choice,” said Teresa Carroll, chief executive of Magnit, a firm that manages temp, contract and freelance workers for companies. Workers are choosing arrangements such as part-time, flexible or remote work, prompting employers to adapt to fill roles.

Total employment will grow about 0.3% a year until 2032, the Labor Department recently projected, much slower than the 1.2% rate over the past decade, largely because of population constraints. That will contribute to slower growth in gross domestic product, the agency said.

The baby boomers were the largest generation of Americans, with 76 million children born between 1946 and 1964. They currently range in age from 58 to 77. By the end of 2028, even the youngest living baby boomers will have reached the average retirement age of approximately 64. 

The next largest generation, millennials, numbered 62 million births in the U.S. from 1981 to 1996, per the Pew Research Center, but has grown because of immigration. 

Baby boomers, who had been on a steady trend of working more years, pulled back during the pandemic. Many retired and haven’t returned.

The U.S. birthrate—the number of births per 1,000 people—has been falling for decades, declining by about half since the 1960s.

The share of people living in the U.S. who are in the labor force peaked at 67.3% in the first three months of 2000, when the oldest baby boomers were 54 years old and the youngest were 35. It helped that the U.S. was in the midst of an economic expansion, the first dot-com boom.

Participation hasn’t fully recovered from pandemic-era losses, though there have been signs of growth for prime-age workers—those between ages 25 and 54. The overall participation rate is expected to drop to 60.4% in 2032, according to the Labor Department, mainly because of baby boomer retirements.

Wages reflect supply and demand. They shot up during the pandemic recovery and have recently outpaced inflation, which gives workers more spending power. Long-term labor shortages could lead to a faster pace of wage growth for the foreseeable future. 

John Fish, chairman and CEO of construction contractor Suffolk, said an aging workforce and fewer young people entering the industry are a combustible combination. “A carpenter now is making 20% to 25% more than they did 24 months ago, and that is not sustainable.”

Filling the void

Labor shortages can be eased by funneling more people into the labor force or making the current workforce more productive. That can be done through immigration; outsourcing more work overseas; tapping underutilized labor pools such as people with disabilities and the formerly incarcerated; and improving productivity through automation, training and refining business and production processes.

Companies and countries have three options when it comes to managing a shortfall of workers, said Magnit’s Carroll. “They can plan for it, they can do nothing, or they can have hope. And to me, hope is not a strategy.”

As a general rule, an economy is able to grow about as quickly as its workforce expands, plus any gains in how productive the workforce is. Productivity is difficult to measure, and in the past few years, the numbers have been muddled by shocks from the pandemic. Overall, productivity growth has been mostly lackluster, rising about 1.4% a year over the past decade.

Generative AI tools such as ChatGPT could help, but the technology is too new to know exactly where large language models can be reliably applied in business or work settings.

Offshoring, the scourge of the U.S. manufacturing workforce in the last decades of the 20th century, has lost favor with some business leaders after the pandemic highlighted the vulnerabilities of a global supply chain. Reshoring—bringing manufacturing back to the U.S.—is gathering momentum, backed by billions of dollars in government subsidies.

That leaves immigration. After falling during the pandemic because of Covid-related policies, immigration has come back strongly. But it remains a divisive issue, and business leaders say the lack of a coherent, stable policy is contributing to the labor problem.  

“If we don’t solve this with a thoughtful immigration program, we’re going to drive wage rates through the roof in the next two to three years because of the systemic shortfall of labor at the end of the day,” Fish said.

Write to Lauren Weber at Lauren.Weber@wsj.com and Alana Pipe at alana.pipe@wsj.com

Corrections & Amplifications
Some airline unions recently have voted to authorize strikes. An earlier version of this article incorrectly said strikes have flared up recently at airlines. (Corrected on Sept. 26)