The changing demographics of the workforce and the generational challenges to come

Shifts in domestic migration, a shrinking workforce, millennials searching for new opportunities, and a growing urban-rural divide all challenge our understanding of the forces driving growth and development. We’re not fully in the “demography is destiny” camp, but recognize that changing population dynamics have economic implications, as the linked World Economic Forum article makes clear. 

Washington state, particularly the metropolitan Puget Sound region, has generally been a winner in the restructuring. The posts we link to above describe how the metro area has been a magnet for Millennials, now the nation’s largest living generation having overtaken Baby Boomers. Washington a top state for domestic in-migration. This has been an important contributor to the state’s economic strength, fueling innovation and entrepreneurship.

Yet nationally we see the seeds of concern, as workforce participation declines for reasons we still know too little. The Brookings Institution recently published a brief report by scholars Eleanor Krause and Isabel V. Sawhill.

Today’s unemployment rate of 4.8 percent, showing the United States still nearing “full employment,” will dominate the mainstream news. But behind the headlines is a troubling, stubborn trend: men and women dropping out of the labor force. Today’s report confirms this decline, with the labor force participation rate sitting at 62.9 percent compared to its 1990s peak of 67.3 percent.

Among the several factors they cite as contributing to the decline is a priority of ours:

There are likely many more factors dragging down America’s prime-age labor force participation rate—increasing numbers of individuals lack the skills necessary to perform today’s jobs. 

The link above takes you to this Wall Street Journal story, which reports,

Growing numbers of small-business owners say unfilled job openings are thwarting their growth at a time of high confidence in the economy. 

About 33% of 848 small-business owners and chief executives said they had unfilled job openings in June because they couldn’t identify qualified applicants, up from 31% of 811 owners nearly two years ago, according to surveys by The Wall Street Journal and Vistage International, a San Diego peer advisory group for executives. 

We reported on similar concerns expressed by business owners here in our foundation report.

In 2012, manufacturers told the Association of Washington Business (AWB) that they experience difficulty in recruiting high-level workers (managers and engineers), citing shortfalls in math and critical-thinking skills. Those views have been reinforced in the Washington Employer Survey conducted every two years by the state Workforce Training and Education Coordinating Board, in conjunction with AWB and the Washington Chamber of Commerce Executives. Those survey results reveal that of some 60,000 employers who hired in 2012, “one in five had difficulty finding qualified applicants.”

While Washington has yet to experience a declining workforce as a result of negative population growth, many states and nations are now coming to grips with that strange demographic trend. Joel Kotkin reports in New Geography,

For most of recent history, the world has worried about the curse of overpopulation. But in many countries, the problem may soon be too few people, and of those, too many old ones. In 1995 only one country, Italy, had more people over 65 than under 15; today there are 30 and by 2020 that number will hit 35. Demographers estimate that global population growth will end this century.

…aging populations, with fewer young workers and families, threaten weaker economic growth, as both labor and consumption begin to decline.

It’s a sobering article, well worth your time. Here’s what he writes about the U.S.,

To a remarkable extent, the United States has avoided these pressing demographic issues. The U.N. has the U.S. tied with Canada for the fastest projected population growth rate of any developed country: a 21% expansion by 2050. Yet this forecast could prove inaccurate.

One threat stems from millennials who, even with an improved economy, have not started families and had children at anything close to historical rates. Today the U.S. fertility rate has dropped to 1.9 from 2.0 before the Great Recession; population growth is now lower than at any time since the Depression. This places us below replacement level for the next generation. Projections for the next decade show a stagnant, and then falling number of high school graduates, something that should concern both employers and colleges. The United States’ high projected population growth rate, like that of Singapore, is entirely dependent upon maintaining high rates of immigration.

Also, the in-migration trends have important implications. From Stateline:

Eight states lost population between 2015 and 2016, and 12 others recorded their lowest population increase of the decade, as economic woes and lower birth rates hit some states harder than others.

Connecticut, Illinois, Mississippi, New York, Pennsylvania, Vermont, West Virginia and Wyoming lost population.

Again, Washington bucks the trend.

Idaho, Nevada and Washington state are experiencing some of the fastest economic and job growth in the nation. And their populations are growing along with that, rising at more than twice the national growth rate from 2015 to 2016. 

But we should be mindful of the forces at work, including the business climate.

High state and local tax burdens may not force people to pick up and move. Most often it’s for jobs, higher pay or a desire to retire elsewhere. But taxes contribute to the cost of living and factor into people’s thinking about moving, some research indicates…

If businesses and the jobs they provide leave, so do people. So some states are seeking to hang on to the businesses they have and attract new ones by improving their business tax climate.

And, of course, housing affordability plays a role, as Kotkin writes in another article focusing on Millennials. After debunking claims that Millennials don’t want to become homeowners or start families, he notes the effect of limited affordability

 The millennial housing crisis is reshaping the geography of opportunity. Although millennial rates of homeownership have dropped nationwide, the most precipitous declines have been in such metropolitan areas as New York, Miami, San Francisco, Portland, Seattle, and Los Angeles. In all these areas, public policy has regulatory barriers in the way of suburban and exurban affordability. It is in these markets where such things as “tiny houses” and “micro-apartments”—not exactly a boon to people looking to start families—are being touted as solutions to housing shortages.

 If Washington wants to maintain its enviable status as a thriving state – and make sure that opportunities and prosperity are not limited to the metro area – the lessons of changing demographics and workforce participation are clear: provide a solid education, including increased postsecondary attainment, maintain a competitive business environment that retains and attracts jobs and investment, and adopt policies that will create abundant, affordable housing.