The Kansas City Fed team says slower population growth, immigration curbs and Boomers dropping out have created a labor force gap.
According to a new report from an economic research team at the Federal Reserve Bank of Kansas City, an estimated 2 million workers are “missing” from the US workforce, compared to pre-pandemic participation rates, despite strong demand in the labor market.
The share of the US population that is working or actively looking for a job—known as the “participation rate”—was 62.2% in April, which is one percentage point below pre-pandemic levels, the report said.
The KC Fed report said the actual US labor force is an estimated 3.6 million smaller than it was before the pandemic, but only about 1.6 million of the shortfall can be attributed to demographics including an aging population and declining populations levels, leaving about 2 million workers in the “missing” category.
The research suggested that two-thirds of the missing workers are Baby Boomers who have dropped out of the workforce, while a third are under the age of 55. It said the 55-64 age group demographic is approaching pre-pandemic levels in its participation in the workforce.
“Increases in the size of the aggregate labor force in the near term will depend on the pace of recovery in the labor-force participation rates of older groups and further increase in the prime-age labor force participation rates,” the report said.
The KC Fed report was accompanied by a chart that illustrated steady growth in the US labor force between 2015 and the beginning of 2020, increasing from 156 million workers to more than 164 million, then plunging back to 156M in Q1 2020.
Based on the trend between 2015 and the outbreak of the pandemic, the chart projected that the US workforce was on a track to hit 168M by 2022; currently totals about 164M.
Although the US population (age 16 and older) grew by 3.8 million between 2020 and 2022, the pace of population growth was slower than its pre-pandemic trend, the report said.
“Had the US population continued to grow at its 2015-2019 pace after February 2020, an additional 1.8 million people would be living in the US, many of whom would have joined the labor force,” the report noted.
The KC Fed report said immigration restrictions imposed at the US border during the pandemic resulted in 2M fewer working-age immigrants living in the US.