The labor force in the United States is the powerful motor that drives economic growth and makes it possible for companies in different industries to hire a wide range of talent and continue innovating. The U.S. labor force participation rate has been steadily falling for about 20 years and will probably result in some big changes to the economy and the job landscape over the coming decade. Continue reading to learn why the labor force is shrinking, and what knock-on effect this will have on wages.
Why Is the Labor Force Shrinking in the U.S.?
The labor force is shrinking for a number of different reasons, one of them being the massive number of baby boomers who are retiring every year. In 2020 alone, 30 million baby boomers left the workforce for good, and industries could seriously struggle to replace so many employees at the same rate that they’re retiring.
COVID-19 has also caused a drastic reduction in the labor force participation rate. The U.S. Bureau of Labor Statistics estimates that about 6 million people have left the workforce since February 2020, making the drop in participation much more accelerated than predicted before the pandemic.
Other factors contributing to the decreasing labor supply are potential workers being unmotivated to look for employment, candidates being unable to find jobs that match their skills, and parents unable to work due to lack of affordable childcare. All of this is quickly lowering the number of people who make up the active workforce, and the U.S. is currently nearing the same levels of workforce participation as the 1960s.
What Effect Will This Have on Wages?
When millions of new positions are added to the job market every year and the number of available workers continues to fall, this creates an increased demand for professionals across different sectors. This in turn drives wages up, as employers compete with each other to attract the best talent to their organization. This trend has become more evident than ever during the pandemic, as wages for healthcare professionals soared due to short supply. This isn’t unique to healthcare! Advertised wages have risen by 16% since February of last year, including for truck drivers and forklift drivers.