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