The US labor pool will grow 75% more slowly than usual over the next decade due to heavy retirement. This will:
- Bring unemployment down quickly, even if we attract more people back to the labor force
- Create wage inflation as employers finally have to compete for talent
For years, the US has been adding 1.8+/- million eligible people to the labor pool:
- 4.3 million+/- people have been turning 20 every year
- 2.5 million+/- people have been turning 65
In 2012, the labor pool growth got cut in half, to 0.9 million, as 4.5 million people turned 20, and the number of people turning 65 skyrocketed to 3.6 million. Looking forward, the labor pool growth will steadily decline to a paltry 0.2 million in 2022, where it will stay flat for several years. This forecast uses the “middle immigration series” forecasted by the Census Bureau. Robust immigration would change the numbers but not the conclusion. We also tested pushing out retirement a few years, and all it does is delay the inevitable. The underemployed and those who dropped out of the labor force will find it much easier to return to work.
This is mostly great news for housing demand:
- Household formations will be strong, driving apartment demand and eventually home buying.
- Household incomes will finally start growing, allowing for rent increases.
- The surging demand for retirement housing will need to be met.
Not all is rosy, as this also means that the economy will continue to grow slowly, at best, and that the cost to build homes will likely rise. Overall, we expect the positive to significantly outweigh the negative, especially if you focus on the demographic opportunities.
