To Solve Long-Term Inflation, America Needs More Babies and Immigrants

The cost of goods is rising and rising—6.1% last year, according to government numbers released on Friday, Feb 25—and lots of ink has been spilled explaining why. {snip}

But the simplest explanation may be this: because of long-term demographic shifts, the U.S., like many other countries, simply doesn’t have enough workers to make and move all the things that people want to buy anymore. Too many older people have dropped out of the workforce, never to return, and too few young people and immigrants are coming to replace them. There are 11 million job openings in the U.S. economy right now, yet there are only 6.5 million people who are unemployed.

{snip} More than half of the 5 million people who dropped out of the labor force since early 2020 are 55 or older {snip}

The demographic shift is driving prices up in industries including transportation, manufacturing, and construction, to name a few. Consumer packaged goods company Post Holdings, Inc., which owns brands like Raisin Bran, said in an earnings call on Feb. 4 that internal and external labor shortages had driven up the cost of its products last quarter. United Airlines said in January that because of a pilot shortage, it was cutting services to around 20 U.S. communities—like many airlines, United saw retirements accelerate during the pandemic. And Albertsons, the grocery chain, said in a January earnings call that because of labor shortages, it was paying workers more overtime, which led to some price increases.

The worrying part of demographic-driven inflation is that it’s not going away anytime soon. Last year, the U.S. population grew at 0.1%, its slowest rate since the nation’s founding, according to Census Data. And still the population continues to age as the fertility rate declines. By 2034, older adults will outnumber children for the first time in U.S. history. The share of the population that is under 20 years old has been steadily declining, from 27% in 2007 to 25% in 2020.

Economists also thought that Baby Boomers— born between 1946 and 1964—would stay in the labor market for longer. {snip}

But instead, when the pandemic hit, Boomers took stock of their finances and decided to retire. {snip}

This might not have been a problem if workers were coming from other parts of the population to fill the gap. Historically, immigration has helped shore up the labor force when demographic trends lead to worker shortages. But immigration, too, has been falling since 2016. Net international migration in 2021 was just 247,000, the lowest number in at least a decade and about one-quarter of what it was in 2016.

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It may be difficult to reverse these numbers, especially because trends of declining birth rates and aging populations aren’t unique to the U.S. Other countries that have typically provided the U.S. with workers, such as Mexico, also have historically low unemployment rates. The economic conditions in other countries that have long driven immigrants to the U.S. may not be as dire as they used to be, as strict immigration policies enacted during the Trump administration have made it harder for people to migrate to the U.S.

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Consumers in states like Maine, New Hampshire, and Pennsylvania are already seeing the labor issues that come with an aging population. These are states that are already “super-aged,” meaning that 20% of the population is 65 or older, a designation the entire U.S. will reach in 2028. They’re already facing big labor shortages because of retirements and a lack of workers.

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