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THE U.S. MAY FACE A WORLD OF TOO FEW WORKERS

“From the Desk of Michael Sheldon”

In the United States, a number of different economic reports are released every month.  Recently two reports caught our eye that we wanted to share with you (both from the Bureau of Labor Statistics – BLS).

The first is called the “Jolts” jobs report.  There are several different components within the report but the one we want to highlight is the number of jobs that companies are currently looking to fill.  The report only dates back to the year 2000, so it doesn’t go too far back.  What got our attention is the fact that according to the most recent report, there are currently 6.7 million jobs available that companies are looking to fill.  For reference, this compares with a reading of about 2 million jobs back in July, 2009 just when the country was coming out of its last recession.

The second report is the employment report.  That has a much longer history and dates back to 1948.  There are also many different components within this report but the one data point that we wanted to focus on here is the number of unemployed people in the United States.  As of last month, this number stood at 6.1 million people.  For reference, this compares with a reading of about 15 million people back in July, 2009, just when the United States was coming out of its last recession.

The chart below provides a comparison of the number of jobs companies are looking to fill (blue line) versus the number of unemployed (red line) – source: Factset (data in thousands).

When you calculate the potential growth rate of the economy, there are two factors that are needed.  The first is the level of productivity and the second is the growth in the labor force.  Productivity (i.e. the amount of output per worker) was much higher a few decades ago but has been trending lower over the past decade or two.  A number of reports by some of the most respected economists have tried to analyze the factors behind what drives productivity in the U.S. economy.  That is not the focus of this RDM Blog.

Instead, we are taking a look at the labor force and whether the country is running out of available workers.  This is an important issue because if we cannot generate the number of workers that are needed, this could limit the economy’s growth rate in the future.

We would like to highlight a few key points:

  • There is a statistic released by the BLS each month called the “labor force participation rate.” The labor force participation rate refers to the number of people available for work as a percent of the total population.  It currently stands at a level of 62.7% versus a peak of 67.3% in April, 2000.  There has been a lot of debate about why the number has dropped so much compared with previous years.  One reason pointed out by economists is that as baby boomers get older, they have been retiring and falling out of the labor force.  According to the Pew Research Center, roughly 10,000 baby boomers retire every day.
  • Immigration is another part of the puzzle. Congress has not been able to agree on the appropriate immigration policy for the United States.  It seems that more (not less) workers are needed.
  • There are a number of other reasons given for the growing U.S. labor shortage. First, some economists have cited a skills gap whereby a number of Americans lack the skills needed for today’s job market and have simply given up looking for work. This appears especially true for many advanced manufacturing jobs. Second, the opioid crisis in the United States may be taking its toll on a growing number of Americans.  Third, a large number of Americans are incarcerated in U.S. jails and unable to participate in the U.S. labor market.

One possible solution to the labor shortages cited above may be the development of so called “disruptive” technologies such as artificial intelligence (AI) and robotics. The spread of these technologies could have both positive and negative implications.  On the positive side, replacing workers with advanced technology could help generate faster economic growth in the future.  As the workforce get older, there may be some tasks that are better suited for robots to do.  On the other hand, if AI and robotics spread and displace existing workers, that could lead to rising unemployment and the need for job retraining in some industries.

According to a recent business news article which surveyed 992 companies with revenues of $500 million or more that are implementing artificial intelligence as either a pilot project or on a widespread basis, “83% of respondents in the survey reported new jobs were created as a result of AI implementation. Additionally, 63% reported AI had not destroyed jobs in their organization. These findings support the recent analysis by Gartner that AI will create 2.3 million jobs in 2020 while eliminating 1.8 million.”  Source: Forbes – Artificial Intelligence and Robotics Will Lead To More Jobs, If We Do It Right, March 8 2018.

In summary, whatever the reason may be, the U.S. may be running out of available workers.  On a short-term basis, these trends are unlikely to change very much.  However, looking our longer term, the development of new technologies such as  AI and robotics may address looming labor market shortages (while creating some potentially negative side effects along the way).  Ultimately, if labor market shortages persist, despite recent tax cuts out of Washington, a lack of available workers could limit the growth rate of the U.S. economy in the years ahead.  Stay tuned as we will have more to say about these (and other) potentially game changing industries and technologies in the quarters ahead.

As always, if you have any questions please do not hesitate to reach out and give us a call.

Michael Sheldon, CFA

Executive Director & CIO

 

Ronald D. Weiner, CFP®

Managing Director & Partner

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