Other than supply and demand, the U.S. economy is doing fine.
The problems on the demand side are well known. Though the job market is definitely improving, over five years into an economic expansion, there’s still considerable slack, as Fed Chair Janet Yellen rightfully and frequently highlights.
But there’s an even longer-term challenge confronting the U.S. economy having to do with the supply of inputs that are just as essential to economic growth as nutritional inputs are to physical growth. And we think we have a way to help.
At the heart of this supply-side challenge is the declining US labor force. In the two decades prior to the Great Recession, the U.S. labor force grew a bit more than one percent per year, and 66 percent of the working-age population either worked or looked for work.
Since then, under the weight of both the downturn and our aging demographics, that participation rate has fallen faster than any time on record to its current level of 63 percent. Going forward, the Congressional Budget Office expects that retirement will reduce labor force activity by about two more percentage points in the next decade. The CBO expects this decline in the workforce to shave almost a full percentage point from GDP growth per year, compared to the past 60 years.
But it is by no means the case that all the labor force exiters are retirees. Well before the downturn hit, a significant number of young (16-24) and “prime-age” (25-54) adults gave up on the labor force. And, since the recession began, those below age 55 account for about half of the decline in workforce activity that we’ve seen.
Curated from www.washingtonpost.com