Aging, Immigration and the Future of the U.S. Labor Market
Federal Reserve Bank of Dallas10/08/2019
Pia M. Orrenius, Vice President
The views expressed are my own and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or Federal Reserve System.
• Lessons from Great Recession• Slow recovery directly related to weak workforce growth
• Regional impacts• Less-populated and rural areas are far more affected
• Role of immigration• International migration plays an increasing role in growth• High and low-skilled workers important
• Policy implications• Domestic workforce• Immigration
Overview
2
Lessons from the Great Recession
3
Judging by real GDP growth, the current expansion has been unusually weak
100
105
110
115
120
125
130
135
140
145
1 2 3 4 5 6 7 8 9 10
1982:Q4—1990:Q3
2009:Q2—present
1975:Q1—1980:Q1
1991:Q1—2001:Q1
2001:Q4—2007:Q4
Index, business cycle trough = 100
Years into recoverySOURCES: Bureau of Economic Analysis; National Bureau of Economic Research; authors’ calculations.
But divide real GDP by the size of the labor force, and this expansion looks more ‘average’
100
105
110
115
120
125
130
1 2 3 4 5 6 7 8 9 10
1982
2009
1975
1991
2001
Years into recovery
Index, business cycle trough = 100
SOURCES: Bureau of Economic Analysis; National Bureau of Economic Research; authors’ calculations.
The explanation: Labor-force growth has been exceptionally slow
SOURCES: Bureau of Labor Statistics; National Bureau of Economic Research; authors’ calculations.
90
95
100
105
110
115
120
1 2 3 4 5 6 7 8 9 10Years into recovery
Index, business cycle trough = 100
1982
2009
1975 1991
2001
Labor force and working-age population growth rates declining over time
2.71
1.95
1.27
0.84
0.39e
0.24e
2.05
1.371.16 1.11
0.45e
0.21e
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1970s 1980s 1990s 2000s 2010s 2020s
Labor force, 20-64 years oldPopulation, 20-64 years old
Percent change, annualized
NOTE: “e” denotes an estimated value.SOURCE: Bureau of Labor Statistics (2018–2028 growth rates from Employment Projections program; 2020s estimates only through 2028).
U.S. Labor-force participation rate in decline since 2000
63.2
56
58
60
62
64
66
68
'50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Percent
NOTE: Data through August 2019.SOURCE: Bureau of Labor Statistics
Slowing labor force growth US population growth has slowed to 0.7 percent per year
since 2010, and is set to fall to 0.4 percent by 2040 Employment growth projected to fall to 0.5 percent over
next decade Main reason is aging and falling fertility, but other factors have
played a role too • Technology• Trade• Other factors: increased receipt of disability benefits;
higher minimum wages; higher incarceration rates
Implications of the workforce slowdown In the long run, aggregate economic activity grows in two main
ways Labor force growth Productivity growth
But productivity growth has also slowed in the post-recession period Averaging 0.9 percent since 2011, down from 2 percent in the
two decades prior to 2000 Reasons are debated: measurement problems; secular
stagnation; today’s innovations fall short or materialize with a lag
Regional Impacts
11
U.S. population change by county: Coasts plus West, South adding population
NOTE: Data from 2010 to 2018.SOURCE: Census Bureau.
Population growth sluggish in small- and mid-sized metro areas, negative in rural counties
-0.5
0
0.5
1
1.5
2
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Medium Large Small Nonmetro
NOTE: Data through 2018.SOURCE: Census Bureau.
Average annual change, percent
Small and rural counties need natural increase, international migration to grow
0.7%
1.1%
1.1%
1.7%
0.3%
1.8%
2.0%
2.9%
-2.3%
-0.2%
1.2%
2.6%
-3 -2 -1 0 1 2 3 4
Non-metropolitan counties
Small metro counties
Midsize metro counties
Large metro counties
Domestic migrationBirths minus deathsInternational migration
SOURCE: Census Bureau.
2010-2018 components as a share of 2010 population by county, percent
Less than -1.9 percent
-1.9 to -1.1 percent
-1.1 to 0 percent
0 to 3.5 percent
Above 3.5 percent
NOTE: Chart labels show accumulated net domestic migration from July 2010 to July 2017 as a percent of population in 2010. SOURCE: Census Bureau.
Impact of migration apparent at state level too:Net domestic migration between states
NOTE: Chart labels show accumulated net international migration from July 2010 through July 2017 as a percent of population in 2010. SOURCE: Census Bureau.
0.2 to 1.0 percent
1.0 to 1.2 percent
1.2 to 1.5 percent
1.5 to 2.6 percent
Above 2.6 percent
Impact of migration apparent at state level too:Net international migration by state
Role of Immigration
17
As Baby Boomers leave the workforce, all growth in next two decades will be from immigrants and their children
1.03.8
6.910.8
6.13.5 1.2
-2.5 -3.1 -1.8
0.3
2.4 5.77.9
13.3
20.0 15.110.6
4.8
-4.3 -3.8
-5
0
5
10
15
20
25
1965 to 1975 1975 to 1985 1985 to 1995 1995 to 2005 2005 to 2015 2015 to 2025 2025 to 2035
1st generation2nd generation3rd+ generation
Net change in working-age population (25-64)
NOTE: Data for 2015 onward are projections.SOURCE: Pew Research Center.
Immigrants add to high-skill labor force, fill low-skill void
-3.9
-4.7
4.4
11.0
7.5
1.8
3.8
2.4
3.7
3.1
-10 -5 0 5 10 15
Less than high school
High school degree
Some college or associate's degree
Bachelor's degree
Higher than bachelor's degree
Foreign-bornNative-born
MillionsNOTE: Data refer to change in civilian labor force ages 25 and over from 1996 to 2018 in millions of workers.SOURCE: Bureau of Labor Statistics.
Historical and projected working-age population growth by educational attainment
5.8
4.1
2.21.2 0.8
3.82.4
-1.4
-3.1-4.7
11.4
8.7
11.1 10.811.6
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2002–2007 2007–2012 2012–2017 2012–2022 2022–2027
TotalBelow BABA and above
SOURCE: The Conference Board.
Population growth, percent
Most new jobs low and mid-skilled
Many fast-growing jobs low- and mid-skilled
Policy Implications
23
• Possible reforms to increase work, improve labor market efficiency• Tax spousal income at its own individual rate• Reform Social Security• Reform UI program—broaden eligibility• Expand eligibility for EITC, increase benefits• Mobility subsidies to help workers move to growing areas• Invest in workforce development, training
Policy: Encourage work
24
• Increase legal immigration and raise share of employment-based immigration
• Prioritize• Skills, job offers• Fast-growing industries/occupations/regions• Allow sponsors
• Consider temporary worker program for low-skilled immigration• Possibly through a modified TN visa, extended to Central
Americans
Policy: Increase immigration
25
Immigrants go where jobs are growing
AL
AK
AZ
AR
CA
CO
CT
DE
FL
GA
HI
ID
IL
INIA
KS
KY
LA
ME
MD
MAMI
MN
MSMO
MT
NENV
NHNJ NM
NY
NC
ND
OH
OKORPA
RI
SC SDTN
TX
UT
VT
VA
WA
WV
WIWY
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
-0.15 -0.1 -0.05 0 0.05 0.1 0.15 0.2 0.25
NOTE: Coordinates indicate logged deviation from median foreign born population growth (vertical axis) and from median state nonfarm payroll growth (horizontal axis) from 1990 to 2018.SOURCES: U.S. Census Bureau; 2018 American Community Survey; Bureau of Labor Statistics.
Fore
ign
born
pop
ulat
ion
grow
th
State employment growth
• Benefits of migration accrue to immigrant, employers, and consumers• Costs fall on substitutable native workers, prior immigrants• Consider a scheme to transfer immigration gains to affected
workers• Encourage investment
• Role of regulation• Need investment to rise with immigration, must bring capital
and labor together
Policy: Mitigate costs, compensate losers
27
Conclusions• The US economy is facing unprecedented and structural
demographic shifts that will slow labor force growth to historic lows• Productivity growth is unlikely to compensate for loss of labor growth,
which means GDP growth will continue to slow• There are also disproportionate region- and industry-specific impacts
of workforce slowing that can prove harmful• Common sense policies can be adopted to mitigate the
consequences of current demographic trends• Reform tax system, entitlement programs• Workforce training, mobility subsidies• Immigration reform
28
Thank you!
29