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In the second half of the 20th century, the US working-age population (defined here as ages 15 through 64) grew at an annual rate of 1.3%. In the first decade of this century, it downshifted to 1.1%.

The 2010s brought a rapid slowdown that by some estimates turned into an  outright decline from 2019 through 2021 before reverting to barely positive growth since. The United Nations Population Division’s “medium scenario”  forecast has US working-age population growth bumping along near zero for the rest of the century.

The past few years in the US have also been a time of nearly record-low unemployment, a “Great Resignation,” a wave of strikes and what economists David Autor of the Massachusetts Institute of Technology and Arindrajit Dube and Annie McGrew of the University of Massachusetts at Amherst recently called an “Unexpected Compression” of wages as low-wage workers gained ground on everyone else.

Could these phenomena be related to the sharp decline in working-age population growth? Yes, probably. Does the end of working-age population growth mean a new era of worker power and reduced inequality? That’s a bit more complicated.

Two significant crosscurrents are at work. Having fewer working-age people is good news for those who remain if demand for labor holds up. But slower working-age population growth usually translates into slower economic growth overall, thus leaving a smaller pie to divide.

In a 2022 Journal of Economic Literature review of research on the “The Economic Impact of the Black Death” — the archetypical labor shock in that it killed about 40% of Europe’s population from 1347 through 1352 but didn’t destroy capital such as roads and buildings — Remi Jedwab of George Washington University and Noel D. Johnson and Mark Koyama of George Mason University call accounts that emphasize the first effect “Malthusian” and those that emphasize the second “Smithian.” Thomas Robert “Bob”(1)Malthus was the economist who predicted  in 1798 that continued population growth would result in mass starvation, while his precursor Adam Smith’s views on the division of labor and commercialization suggest, the authors write, “a positive, not negative, relationship between population growth and economic growth.” (A paywall-free draft of their article is  here.)

In the long haul, the Smithian worldview has mostly triumphed, and during the plague itself economic activity contracted sharply across Europe as population fell. Over the century that followed, though, Jedwab, Johnson and Koyama report that Malthusian effects won out in the sense that real wages and incomes rose and economic inequality decreased. Then, around 1500, a divergence began in which incomes declined in Southern Europe but kept rising in the north, possibly because of institutional and societal changes in the wake of the pandemic such as the end of serfdom, later marriages and increased state capacity.

The labor supply shock of the past few years has, of course, been modest in comparison. There was another pandemic, but the 2020-2023 Covid-19 death toll of 1.15 million estimated by the Centers for Disease Control and Prevention amounts to just 0.3% of the US population, while the 276,630 Covid deaths among working-age Americans are only about 0.1% of that population.  Long Covid and the   departure of many workers older than 65 from the labor force have had a bigger impact, together probably removing more than a million people from the job market during the pandemic. The main reason for the stalling of working-age population growth, though, is simple demographics.

About 4 million baby boomers, or 2% of the working-age population, are turning 65 each year, and while the number of Gen Zers turning 15 each year is 200,000 to 300,000 higher than that, more than 820,000 Americans ages 15 through 64 died last year, and about 700,000 died annually in the years leading up to the pandemic. Immigration is thus the only thing keeping the working-age population from shrinking, with the slowdown in legal immigration over the first three years of the Trump administration (during which illegal immigration   actually rose) and the shutdown of all immigration in the early days of the pandemic accounting for the probable declines in working-age population from 2019 through 2021.

With a federal deficit that rose in the late 2010s and exploded in response to the pandemic providing the demand, this reduction in labor supply resulted in an extremely tight labor market. This, in turn, had the effect of “reducing employer market power and spurring rapid relative wage growth among young non-college workers who disproportionately moved from lower-paying to higher-paying and potentially more-productive jobs,” Autor, Dube and McGrew wrote in their March National Bureau of Economic Research  working paper on “The Unexpected Compression: Competition at Work in the Low Wage Labor Market.”

Those exact conditions won’t last. Deficits have fallen but probably need to decline more, and even if they don’t their stimulative effect will fade because more and more of the money will go to interest on the federal debt, which will end up in somebody’s pockets but not necessarily American ones and definitely not those of the people with the highest propensity to spend. Immigration is also  back, and with it a return for now to at least modest working-age population growth.

Immigration also has its Smithian and Malthusian aspects, with new arrivals spurring economic growth while in some cases depressing wages for some native-born workers. But in the US, if the forecasts are correct, immigration will only keep the 15-to-64 population just about constant through 2100 (as opposed to the 20% decline forecast for the world’s high-income countries overall and the 62% decline forecast for China). We truly have entered a new era for working-age population growth.

Which brings us back to the question of whether that implies a new era of worker power and reduced inequality. This will probably depend mainly on the sorts of institutional and societal forces that shaped economic development after the Black Death or, more recently and more prosaically, after the “Great Compression” of the 1940s. That name comes from a 1992 paper by Harvard’s Claudia Goldin — winner this week of the economics Nobel — and Robert A. Margo (then of Vanderbilt, now of Boston University) that described how a mismatch between labor supply and demand during World War II, coupled with National War Labor Board regulations, brought much bigger gains at the bottom of the wage scale than at the top and how that compressed wage structure remained mostly intact until the 1970s. Goldin and Margo hypothesized that the Servicemen’s Readjustment Act of 1944 (aka the GI Bill), by greatly increasing the relative supply of college graduates in the postwar decades, was a key factor in the continuation.  Others have suggested union strength, low immigration and the era’s very progressive income-tax structure as contributors.

Looking forward, technological change is another important wild card. Increased automation is an obvious response to labor shortages, and as it expands from robots doing some of the tasks of blue-collar workers to generative artificial intelligence taking over white-collar tasks, it’s possible that it will help maintain the wage compression of the past few years. AI also has the potential to bring productivity gains and increased economic growth — as well as, depending who you talk to, mass unemployment, the end of humanity or both. The pace of working-age population growth is important, but it’s not the only thing that matters.

• Minorities Deliver All the US   Labor Supply Growth: Justin Fox

• More   Labor Strife Is Coming to the US Economy: Betsey Stevenson

• We May Finally   Be Witnessing a Normal Labor Market: Karl Smith

(1) That’s what his family called him and I think more people need to know this.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. A former editorial director of Harvard Business Review, he is author of “The Myth of the Rational Market.”

More stories like this are available on <a href="https://www.bloomberg.com/opinion">bloomberg.com/opinion</a>

Justin Fox | Bloomberg

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