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In the United States, the labor force participation rate in March 2023 is about five percentage points lower than in the early 2000s, although female rates have improved in 2024. Such decline has been strongly debated over the last two decades because of the large number of vacancies remaining vacant during the same reference period. This is a puzzle that demands immediate analytical explanation in the United States.
The declining youth workforce, along with sector-specific labor imbalances, is impacting the US economy. Lower rates of family formation as well as a reduction in the workforce have contributed to a further decline in the birth rate. Under-inclusion of young workers in the workforce limits the productive capacity of the economy, resulting in lower output.
These dynamics exert pressure on fiscal policy and public finances at both the regional and national levels, leading to higher direct and indirect tax rates in the West and the United States. Meanwhile, increasing demand for social programs puts additional pressure on GDP growth.
In practice, as “Baby Boomers” (people born between 1946 and 1964) are retiring, Gen-Z workers are not fulfilling those roles at the same level. There has been a drastic change in the skill set, style and work preference of Gen-Z workers, with many preferring self-employment in the rapidly growing “digital economy”, leaving a large portion of traditional job vacancies unfilled. . Technological change will eventually fill the labor void; Yet it will fail to meet the demand for low level jobs that require physical labor and simple application of the human brain.
Housing market trends over the past decade including a lack of inventory, rising prices, and more recently a rapid increase in borrowing costs have also hindered labor mobility by limiting or delaying youth from pursuing productive employment. Instead, young people are living longer in their parents’ homes and towns, leading to labor supply imbalances and unequal abundance or scarcity in local markets.
Given such complex processes of labor supply and demand dynamics, as well as market segmentation and changing work preferences, the long-term survival of the workforce in the US underpins the need for immigration; Even if that comes in the form of an influx of asylum seekers, also known as undocumented workers.
