Demographic Change And The “New Normal”

Tom Gillaspy, State DemographerMn Dept of Administration

May 2011

U.S. Employment Is Not Expected to Return to Pre-Recession Levels Until 2013

January 2011 Marked The Beginning Of A New Demographic Era

First Impacts Will Be Felt In The Workforce & Economic Growth

• The workforce is aging

• Retirements will increase sharply

• The number of new, young labor force entrants will decline

• The workforce will grow much more slowly

• Economic growth will depend increasingly on productivity growth

The Budget Forecast Has Improved, A Bit

• Budget forecast has improved—only $5 billion shortfall expected

• The change from November largely due to increased revenues from capital gains

• Increased capital gains revenue was due to December federal tax compromise

This decade And Next Will See Unprecedented Increases In Minnesota’s 65+ Population

Minnesota High School Graduates Will Decline About 5% Over The Next 5 Years

State Demographer projections for the Office of Higher Education

From 2010 to 2020, The United States Will See Large Increases Age 50s and 60s

Source: Census Bureau projections revised 2009Numbers in thousands

Minnesota’s Labor Force Is AgingIn 1990, the peak was 30; in 2009 it was 46

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Labo

r for

ce

Age

1990

2009

1990, 2007 ACS, smoothed 3 year averages

Minnesota State Government Workforce Is Aging

MSRS active employees

Labor Force Growth Is About To Slow Sharply

1.52%

1.12%

0.75%

0.43%

0.10% 0.13%0.27%

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%

1990-2000

2005-10 2010-15 2015-20 2020-25 2025-30 2030-35

Ave

Ann

ual C

hang

e

New Social Security Retirement Annuitants

Social Security Administration, 12 month total of monthly new annuitants

Mean Age Of Persons Initially Awarded OASDI Benefits Declined Then Leveled

SSA. Annual Statistical Supplement table 6.B5

Change In Minnesota Number of RetireesBased on Social Security OASI Retiree Rate & 2008/2009 ACS

Labor Force Participation By Gender By Age & State Demographer Projections By Age/Gender By Year

For Many Occupations, Replacements Will Outnumber New Job Growth

Projected Openings In Minnesota Occupations 2009-19

DEED projections. Percent of 2009 level

Some Other Considerations In The Labor Market

• More retirees and fewer younger workers should improve opportunities for job seekers

• But employers may respond in other ways1. Increase focus on productivity gains, filling jobs on

less than a one-for-one basis2. Relocate jobs to other, more favorable labor markets3. Recruit workers from other markets

• Alternative responses may be heightened with a growing skills mismatch.

What are some of the skills that modern manufacturers are looking for?

• Knowledge of mechanical and electrical engineering processes

• Ability to work with computerized systems

• Ability to read and write machine programming code

• Ability to read manufacturing blueprints

• Ability to operate automated manufacturing systems

• Understanding of hydraulic, pneumatic, and electrical systems

Today, Manufacturers Need Workers With Technical Skills That Machines Cannot Adequately Perform

Old Normal1. Learning one or two specific

technical roles

2. Physical strength & flexibility

3. Ability to follow fixed, unchanging procedures

4. General attention to production & safety procedures

5. Following orders6. Operating, maintaining, designing

machinery

New Normal1. Mechanical reasoning, logic,

troubleshooting &spatial visualization

2. Personal flexibility, communication &cooperation

3. Initiative, persistence & independence

4. Attention to detail, self-control & dependability

5. Making independent decisions6. Operating computers or comp

machinery for a wide rangeof critical functions

Source: Changes in the required skills and traits of manufacturing personnel from Pearson TalentLens

Overall US Economic Growth Slows As Labor Force Growth Slows

US BEA, McKinsey Global Institute, We will need a 2.3% annual increase in productivity just to reachour 20 year average growth of 2.8%

Productivity Is Not Just Making Things Cheaper

• Productivity is also

Making things better—QualityExamples; Increased high school graduation rate, making the best medical devices made in the world

Making better things—InnovationExamples; cures for chronic diseases, develop new energy sources

The pressure for disruptive innovation is increasing

One Response to Labor Demand Has Been Immigration

Minnesota’s Foreign Born Labor Force Has Increased, Especially in Younger Ages

1990 Census, 2009 ACS, smoothed

The Old Normal+ The Great Recession

+ Long Run Demographic Changes= The New Normal

The “New Normal” Probably Means

• Higher interest rates

• Slower economic growth

• Chronic government deficits & cuts in service

• Worries about how to pay for past promises

• Disruptive events/innovations more frequent

• A single-minded focus on productivity

• A whole new set of opportunities

Creative Destruction/Disruptive Innovation Will Occur

Forces for change are heightened during periods of economic stressWholesale program changes will happenDisruptive changes are not evolutionarySome game changers will occur There will be short term losers as well as winnersA set of new opportunities are revealed

“I skate to where the puck will be, not to where it has been.”Wayne GretzkyFamous Canadian Philosopher