- Economists say the US is likely heading for a recession in 2023.
- But companies are continuing to demand workers, which could help limit job losses.
While tech layoffs dominate headlines and economists predict a 2023 recession, most Americans probably aren't in danger of losing their jobs.
That's because many companies are still struggling to find workers, evidenced by the over 10 million job openings in October alone. And the labor shortage may only get worse in the years ahead.
Two factors in particular — an aging population and lower immigration to the US — may drive the decline moving forward.
"It's increasingly likely that the United States will face long-term hiring challenges due to aging demographics and slower immigration in recent years," Aaron Terrazas, Glassdoor's chief economist, told Insider, adding that "population trends shift slowly over decades and our labor force needs must be framed with that long-term perspective."
Those slowdowns have already contributed to the current labor shortage, and will continue to do so for years to come.
In 2021, the US population grew at the slowest rate in history, according to Census Bureau data. While some of the stagnation has been due to COVID deaths, the trend is expected to continue in the years ahead.
In fact, the not so distant year of 2030 may be a key year for demographic changes per one Census report.
"Beginning that year, all baby boomers will be older than 65. This will expand the size of the older population so that one in every five Americans is projected to be retirement age," the authors wrote. "Later that decade, by 2034, we project that older adults will outnumber children for the first time in US history."
Per a report from Indeed and Glassdoor economists citing the World Bank, the US population is projected to see a 3.2% drop in the number of people aged 15 to 65 from 2026 to 2036. Lower birth rates may fuel a decline in the US working age population, and it's unclear whether immigration will be able to make up the gap.
While the prospect of an ongoing labor shortage may be bad news for US businesses going forward, strong demand for workers could bolster future Americans' job security and wages.
If workers become more scarce, it "would give the workers that are in the labor market more bargaining power," Elise Gould, a senior economist at the Economic Policy Institute, a left-leaning think tank, told Insider, "because they'll have other outside options and employers won't have as many outside options to find workers to replace them."
Looking at the short-term, the labor market is still robust. The US continues to add more jobs than economists forecast month after month. For instance, the US saw a gain of 263,000 jobs in November.
Despite the strong demand for workers in today's economy, Gould says that US job growth and slowing wage gains suggest the labor shortage isn't overly severe just yet.
"If there was a labor supply problem, that could be exacerbated by less immigration or by an aging population," she said. "But it's happening very slowly, and I don't think it explains what is particularly going on in the labor market right now."
Baby boomers are leaving the workforce, and Americans aren't having enough kids to replace them
US birth rates have been declining for decades. That's already affected the labor market, and may continue to do so for decades to come. There are fewer Americans ages 20-24 than ages 25-29, and younger cohorts are even smaller. This comes as millions of baby boomers have retired and exited the workforce.
Indeed economist Cory Stahle said the "pool of workers is shrinking" and likely will continue on this trajectory.
"These demographics are contributing to a tight labor market because what we're seeing is more employees who are aging out of that prime age working group, and we're seeing fewer employees aging in," Stahle said.
"The baby boomers have moved from being in the labor force, to being primary in the labor force, to slowly moving out of the labor force," Gould said. "That has an impact on available workers."
While lower fertility rates have been partially driven by more women entering the workforce and having children later in life, the cost of raising children has also deterred many parents from expanding their families.
Declining immigration worsened the labor shortage, and it could be part of the solution
Fewer children today means fewer potential workers in the future, laying the groundwork for the labor shortage to continue and potentially even worsen in the decades ahead.
Glassdoor's Terrazas says immigration could be part of the solution.
"Immigration increases the number of available workers today," he said, "but also in the future since immigrants tend to skew younger than the general population and have a higher fertility rate."
But immigration has slowed, contributing to the labor shortage that the US has been grappling with. Net international migration to the US has fallen roughly 75% since 2016, from over one million to 247,000 in 2021, per the Census Bureau.
"If immigration were to continue to slow, that would definitely further cause issues with tightness in the labor market because that source of labor that was previously coming to the United States would no longer be coming here," Stahle said.
Some of the decline seen in the past several years can be attributed to COVID restrictions, but it's also been due to US government policies restricting legal immigration, such as cutting the number of green cards issued under former President Donald Trump.
Giovanni Peri, professor of economics at the University of California, Davis, told Insider thus that in just the past few years since 2017 "there was a slowdown of immigration, especially of non-college educated immigrants, and then COVID brought to a complete halt the inflow of immigrants for a year and a half."
According to a study by Peri and Reem Zaiour, if immigration "continued at the trend it had up to 2019," the US would have millions more immigrants of working age. He pointed out that the hospitality and healthcare have historically relied on immigrant labor, and since the beginning of the pandemic, have seen especially acute labor shortages.
A steady decline in the US' working age population might not only create problems for businesses looking to grow. It could mean insufficient healthcare workers to care for the rising number of elderly Americans. Fewer workers could also mean less tax revenue to fund programs like Social Security, and some experts say slowing growth could have significant consequences for the US economy.