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Numbers in the Labor Market

December 3, 2021

Which demographics are opting out of the workforce, and how is that impacting the economy? Catch our newest TrendsTalk episode with ITR CEO and Chief Economist Beaulieu to further insights on the labor market.



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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hello, my name is Brian Beaulieu. Thanks for joining me for this edition of TrendsTalk. I'm the CEO and chief economist for ITR Economics, and we're going to spend a few minutes chatting about this tight labor market. We have a whole webinar coming up on this December 16th, 2:30 PM Eastern Time. It's going to last 60 minutes, and we're going to delve much deeper into this topic. But a few things have struck us already, as we're doing the research, getting ready for presenting you with some forecasts and analysis. One of which is, we hear, and you probably have also, that it seems to be the older group of people, 64 and older, 65 and older, that have opted out of the workforce because the pandemic. When we look at the numbers, we can see that has occurred, but that's not where the most startling difference has occurred. 

The most startling difference has been in the 25 to 44 age bracket. That's where we've seen the biggest decline and failure to come back, in terms of labor participation rate. There's, no doubt, multiple reaches for that ranging from the children not having childcare to lack of school opportunities because of COVID. But it could also be that, as a result of COVID, families have decided that they can rearrange their priorities, their expenses, and it's entirely possible that one out of the two parental units have decided to stay home with child or children. And they're going to live off one income as opposed to having the dual income.

We'll have to get a little bit more beyond the worst of COVID to know how enduring that is, but some schools have opened up, day cares have opened up, and the numbers stay very low. And the economic implications of that are tremendous, because those are prime work years. And in that latter group, into your 40s, those are very significant earning years also. And if people are really downshifting into one income status, that has implications for retail sales, how fast the economy is going to grow, et cetera. We've got to be careful what government policies that encourage this sort of behavior. It may be the great American dream, I'm not saying that it isn't. It's just it can have unintended consequences on overall economic growth.

Changing gears slightly, looking at what this means in terms of labor costs. We've seen a lot of labor costs shoot up because of the scarcity of labor. It's impacted some segments a lot more than others, like healthcare. We've seen a big jump that has yet to occur in some other sectors. Interestingly enough, the CPI follows after the overall cost index for labor, people. It leads by 11 months, versus the cost of people. So this big surge in inflation that we are currently going through is a prelude to ongoing price increases you and I are going to experience for talent over the next year. And you can get ahead of that curve, or you can wait for the even higher prices to come before you try and really nail down retaining people, making sure you are where they want to work. They're only going to get more expensive is what we're trying to tell you by virtue of the CPI leading. And then we'll see it stabilize in terms of the rate of rise that leads down to about 2%, 3%, 4% growth rate in labor costs before it accelerates all over again.

This is the beginning of what you and I, as business leaders, are going to have to figure out how are we going to afford people? And how are we going to train people in this day and age of decreased labor participation in our 25- to 44-, 45-year-olds? We've got a lot of work ahead of us. This is a new trend for our economy to have to content with, since the 1970s, really. We could write the handbook on this one. Just a heads up, it's changing. COVID maybe drove a lot of this change. We'll have to see how enduring the change is. But, right now, looks to be pretty significant. Thank you for listening to this edition of TrendsTalk. I'm Brian Beaulieu.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.