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Opinion: The ‘Great Resignation’ means transformation of US labor force 

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In April 2021, a record 4 million Americans quit their jobs. That record was eclipsed in November, when 4.5 million workers stampeded toward the exit signs.

All told, in 2021, over 47 million American workers resigned. Many took positions with new employers. However, since the pandemic began through January of this year, 1 million employees have not returned to work, according to the Bureau of Labor Statistics. The labor market is undergoing a transformative shift that will reshape our workforce in the years ahead.

There are more job openings than workers to fill them. In December 2021, the BLS reported there were nearly 11 million job openings, yet only 6.3 million people were reported as unemployed.

The shortage in workers has dealt employees who remain in the workforce a strong hand. Employers have been willing to negotiate pay and benefits and allow remote working to woo employees. LinkedIn disclosed that pre-pandemic, 1 in 67 paid U.S. jobs offered remote work. Today, that number is nearly 1 in 6.

On top of that, wage growth is at the highest annual rate since the 1980s. Corporate profit margins have trended up, along with labor costs. Typically, these data points have an inverse relationship. This anomaly, where both metrics have trended higher, means companies have been able to offset higher labor costs by increasing prices and sales volume. The timing of the inflection point has yet to play out.

The shrinking pool of workers is nothing new. The U.S. has seen a downward trend in the labor force participation rate for some time now. Twenty-five years ago, 67% of eligible civilian workers participated in the workforce. Pre-pandemic, that number was 63.5%. As of January 2022, the labor force participation rate was 62.2%, according to the Federal Reserve.

There are currently 263 million eligible workers in the U.S. classified as the “civilian noninstitutional population.” The BLS defines the labor force as individuals ages 16 and older who are not members of the armed forces, imprisoned or otherwise institutionalized. So, that means 163.7 million are accounted as being in the labor force.

Of that number, only 4% were unemployed as of January 2022. The U.S. population has over 330 million people. So, roughly only about half of the U.S. population is in the civilian workforce.

With fewer workers in the labor force today than were present pre-pandemic, the smaller pool of workers has not only put wage pressure on employers scouting for talent but will also further put pressure on funding social programs. Social Security benefits, for example, are funded with payroll taxes. Fewer workers equal less payroll tax collected.

The Social Security Administration projects trust fund reserves will be exhausted in 2033. At that time, revenue will only be enough to pay 76% of scheduled benefits. Although it is unclear what Social Security reform will look like in the coming years, future retirees should not solely depend on Social Security for retirement income.

So, what does the U.S. labor force look like in the years ahead?

In 2030, all baby boomers will be over the age of 65. The growth of the nonworking age population (those younger than 15 and older than 64) has outpaced the growth of the working-age population over the last 10 years.

Over the next decade, it is projected the working-age population, ages 16-64, will grow by just 0.2% – and the vast majority of that growth will come from immigrant workers, according to a JPMorgan Chase & Co. markets report. Comparatively, the average annual growth rate for native-born and immigrant workers combined the last 40 years has been roughly 1%.

American universities have been excellent sources for hiring talented immigrant workers. Yet, enrollment of international students into U.S. colleges was down 15% in 2020-21 from the year prior, according to data from Open Doors. This was largely attributable to the pandemic.

To remain the economic engine of the world, the U.S. needs a strong labor force. The natural growth rate for the U.S. is slowing with increased deaths from our aging population. The birth rate in the U.S. and other Western nations has declined to the point that those nations will require immigration to maintain adequate growth in their labor force.

To navigate this new world, employers will need to be open-minded on how they attract workers and provide flexibility to retain them. 

Andy Drennen is a certified financial planner and senior portfolio manager at Simmons Private Wealth in Springfield. He can be reached at andy.drennen@simmonsbank.com.

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