The Gaping Labor Shortage of 2022 and Beyond: Are Boomers to Blame?
Inflation will be one of our biggest challenges in the coming years—of that I am sure. And while the Fed is focusing on interest rates as one of their core weapons in the fight against inflation, they’re going to have a rough time of it. That’s because inflation is driven by a number of complex factors that aren’t directly tied to the cost of money.
One of the stickiest: The labor shortage.
While the moving pieces of this inflationary economic puzzle are surely complex, here’s how the labor shortage is aggravating the problem of inflation in simple terms. As more employers compete for a smaller pool of workers, they increase wages to attract talent. To cover that increase in wages, they raise the prices of the goods and services they’re selling. To afford the increase in prices, consumers need to make more money. It ends up becoming a vicious cycle that all the while spurs inflation forward and onward.
So what does this all mean? In today’s article, I unpack some of the most important underlying reasons for the labor shortage—reasons that I think the bigwigs in Washington should be paying more attention to if they truly want to have a chance at curbing inflation.
2022 and 2023 Employment Statistics
As of January 2023, there are currently 10.5 million job openings in the US. But there are only 5.7 million unemployed workers. This means that even if every unemployed person found a job, there would still be close to 5 million open jobs remaining!
According to the U.S. Chamber of Commerce, there are nearly 3 million fewer Americans working today than there were prior to the pandemic in February 2020. So where did these 3 million people go?
Up until 2020, older Americans aged 65 and above were actually increasing their presence in the labor force. But once the pandemic hit, Baby Boomers left the workforce in droves. And while most younger people who became unemployed during the onset of the pandemic have since returned to work, Baby Boomers overwhelmingly have not.
Where Did the Boomers Go?
You’ve heard of the Great Resignation. You may have heard of the Great Reshuffle. But have you heard of the Great Retirement? The Great Retirement is just what it sounds like: More people are retiring than ever before. And in fact, the Federal Reserve has found that increased retirements account for almost the entirety of the labor force shortfall.
Nearly 2 million of the 3 million-person shortfall in the labor force can be attributed to “excess retirements” from the Baby Boomers—these are retirements above and beyond retirements that would have happened due to aging alone. In other words, those 2 million Baby Boomers would likely still be in the workforce if the pandemic hadn’t happened.
There are a number of reasons why Baby Boomers exited the workforce when they did. Many were let go as businesses temporarily closed at the onset of the pandemic—and they simply haven’t returned. Others left voluntarily, choosing to prioritize their health in the face of a dangerous illness. And many were able to take advantage of soaring home prices and the post-pandemic market boom to justify and fund an early retirement.
Why Boomers Matter So Much in the Labor Force
So what do these “excess” retirements mean for the labor force and the economy as a whole? Well, besides having an excellent work ethic and an overwhelming go-getter attitude (😉), Baby Boomers play important roles in the US workforce.
The Boomer labor force reached its peak in 1997. According to the Pew Research Center, it is unlikely that the number of Millennials in the labor force will ever match the peak of the Baby Boomers. This means that as more and more Boomers leave the labor force, the more the gap widens. There simply aren’t enough younger workers to replace us.
Furthermore, many of the jobs Baby Boomers are leaving aren’t entry-level jobs. Boomers are leaving jobs that require enormous skills, decades of experience, and high levels of education. Not just anyone can fill those positions. And while it’s easy to assume that Gen Xers and older Millennials might be able to step in and take over, it’s not always that simple.
Gen Xers and older Millennials are both mired in that fun stage of life known as “The Sandwich Generation.” This means they’re “sandwiched” between aging parents who need care and young children who also need care. The combined lack of quality childcare and lack of quality elder care options—to say nothing of the costs—mean that members of these generations are reducing their participation in the workforce as well. Women, especially, are faced with the impossible choice of caring for their loved ones or continuing to work.
Ripple Applications for the Labor Force Shortfall
This is a crisis because a major labor shortage means that businesses in the US can’t grow, compete, or thrive. Employers are having to go without workers, which means they have to reduce production or limit the services they can offer. Even if employers opt for this route rather than raising wages, they’ll likely still have to increase prices to cover their costs.
To exacerbate this problem, the greater number of retired Boomers places more strain on an already strained system: Social Security. Not only is there a greater number of Boomers drawing on Social Security benefits, but benefits are also needing to be adjusted higher to keep pace with inflation. This further emphasizes the urgency of policy changes needed to boost participation in the labor force from those who are able to participate.
In the face of this labor shortage, the US economy will continue to face consequences like rising wages and inflation, in addition to enduring supply chain issues. On a long-term basis, the entire US economy may experience a reduction in GDP growth, creating a domino effect into a recession and the complete inability of businesses in certain industries to expand.
So What Can We—or Our Children and Grandchildren—Do?
It’s clear by now that these are major problems, and these problems aren’t going away. So if it isn’t possible to (easily) replace the 2 million Boomers who have exited the workforce, we must ask ourselves what will happen if millions of jobs continue unfilled for as much as the next decade.
Will businesses—and our economic system as a whole—suffer from a lack of growth?
Will inflation continue unchecked?
Or will Americans use the labor shortage crisis to innovate, problem-solve, and devise creative resolutions, as we have always done?
While I can’t say what will happen, my hope is that our nation will opt for the third choice. There may need to be major policy overhauls to address this crisis.
Two of the most likely options: Immigration and caregiving.
Immigration policy may be one area lawmakers look to change to attract and welcome more qualified workers into the US labor force. Additionally, addressing the lack of quality and affordable caregiving options for both children and the elderly may allow more family caregivers (particularly women) to reenter the workforce for the long term.
However, even major policy changes in these areas aren’t likely to automatically replace the 2 million missing workers. Businesses and leaders are going to have to get creative in other ways. (Could now be an even more opportune time to invest in robotics equipment? Maybe!)
What the Labor Shortage Means for Your Retirement Plan
Businesses are going to face enormous challenges in the next several years. These challenges make it more important than ever to diversify your retirement investments so you’re not relying on the performance of stocks (and bonds) alone to fund your retirement.
Allocating a—perhaps significant—portion of your retirement portfolio to nontraditional assets like private equity and real estate is one of the best ways to hedge against the volatility of the stock market in the face of these enormous labor challenges and their ripple effects.
So how can you use tax-advantaged retirement money to make these kinds of investments? It’s simple. All you need to do is open a self-directed IRA. A self-directed IRA allows you to invest your retirement savings in any approved alternative asset (there are more than 30 available options).
The Chicago Trust Administration Services team has more than 30 years of experience helping self-directed investors make the investments they want to see in their retirement portfolios. To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.