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The Great Unexplained Labor Shortage

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As most people have come to recognize by now, the China Virus radically reorganized economies by removing large numbers of full-time employees from the labor force. Why? Over the past year, there have been half a dozen pieces in Yahoo, Forbes, the Wall Street Journal, and other outlets always asking the same question (“Why the perpetual labor shortage?”) without ever offering an answer.

Labor force participation in America peaked around 2000 at around 67%. It has declined steadily, and somewhat dramatically, since 2003. Then, with the China Virus, it crashed from 63% to just around 60% and has only recovered about one-third of what was lost since.

Generations and the Fourth Turning by William Strauss & Neil Howe

There are several reasons, in fact. First, as Neil Howe, the co-author of the influential demographic study Generations and The Fourth Turning suggests, aging is a key element. Americans who were in the workforce long past typical retirement age of 65 dropped out—or were forced out. The labor force participation rate of the group age 65-75 hovers at 30%, but predictably drops by two-thirds after age 75. And, as Howe would note, the year 2021 marked the point when the first large cohort of that Boomer generation hits 75. One could predict that labor force participation by that key group will begin to decline, not recover, from here on out.

This is, of course, an issue in all countries. Every major developed country, and almost all of the undeveloped countries except Muslim nations, are showing steady declines in birth rates. Virtually everywhere, including China (where the average age will be above that of the U.S. within a year), are below replacement rates and have been for a while.

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