Navigating the Demographic Drought
August 02, 2022
My father was born in 1938 and my mom in 1939, which means they were part of what is known as the "Silent" generation.
When it comes to impacts on population, the generation that followed my parents (born between 1946 and 1964) completely disrupted a trend in the number of children per family that had been steadily declining since 1800.
Source: Pew Research
At the time of our nation's founding, mother's gave birth to an average of 7 children in their lifetime.
By the time of the Great Depression in the 1930's, that rate had fallen to just 2, with 2.1 being the minimum number of children necessary for a population to neither grow nor decline (the extra 0.1 accounting for premature deaths).
My parents were clearly a contributor to the Boomer generation, and even exceeded the peak fertility rate set in 1960 of 3.58, with a total of 5 children.
My oldest brother Dave was born in 1963 (and technically the only Boomer in the family), my sister Donna was born in 1965, my second brother Dan in 1967, and my twin brother Devan and I were born (unexpectedly) in 1971, making the rest of us Gen Xers.
As you can see from the chart below, the children of the Boomers, and continuing with Generation X, quickly returned to the lower trend of fertility.
The average in our family is 2.2 children (Dave with 3 kids, Donna 1, Dan 2, Devan 2, and me 3), which means we Wastchak's did our job of replacing ourselves.
Unfortunately, the rest of the population, especially Millennials and Gen Z, haven't been pulling their weight, and this isn't good.
As they say at NASA, "we have a problem Houston".
The Demographic Drought
In 2021, labor market data company Emsi (now Lightcast) published a report titled, "The Demographic Drought, How the Approaching Sansdemic Will Transform the Labor Market for the Rest of Our Lives".
By "sansdemic", they mean "without people" or "without enough people", which is the "demographic drought" causing major problems in many areas of society, but especially in the labor markets.
It's not that we can't find enough or "the right" people to fill job openings, it's that the people we need simply don't exist, and we need to face the reality that our labor shortage in the United States, and in many other developed countries in the world, is not temporary.
The problem we face has been building for decades and wasn't caused by the recent pandemic, just revealed a little sooner, and with more intensity, than it might have otherwise been.
The Sansdemic Report identifies three primary drivers of the demographic drought that's no longer "coming", but has already arrived, and is intensifying.
Drivers of the Drought
Low Birth Rate
We've already talked about the declining birthrate for women and families over our nation's history, and we're not alone.
Data from the World Bank, and published in the "Sansdemic Report", show that China, Japan, Italy and Korea have birthrates even lower than the United States.
The world as a whole has seen dramatic declines in fertility, plunging from almost 6.0 births per woman in 1960 to 2.5 in 2020.
Source: World Bank / "Sansdemic" Report
While some people might rejoice at the idea that downward shifts in fertility means "over population" of our planet is finally being kept in check, the impacts of population decline rather than growth, or at least par at 2.1, are truly problematic.
The Sansdemic Report described the problem of fewer people very well.
"Fewer people means fewer new ideas. Fewer students. Fewer people in research and innovation. Fewer skills in the job market. Fewer employees. Fewer products and fewer goods. Fewer opportunities for growth."
What if we just had more babies? Wouldn't that solve the problem?
European nations, like Sweden, have tried to incentivize their citizens to have more babies, but in spite of a significant package of incentives, the Sansdemic Report notes that, "Sweden's fertility rose from 1.7 to a peak of just 1.9 in 2010 and has dropped every year since, returning to 1.7" in 2020.
Furthermore, "Not a single European country has succeeded in raising its fertility rate above the 2.1 replacement level."
Fewer people means fewer new ideas. Fewer students. Fewer people in research and innovation. Fewer skills in the job market. Fewer employees. Fewer products and fewer goods. Fewer opportunities for growth.
The "Sansdemic" Report
A Mass Exodus of Baby Boomers
Lots has been said in recent years about the coming wave of retirees from the Baby Boom generation, and we're now fully experiencing that wave, to the tune of 2 million retirements each year.
The corona virus pandemic caused that number to jump to 3 million in 2020, and the reasons are many.
According to the Sansdemic Report, "the average net worth for a boomer household is $1.2 million, making it the wealthiest generation in the history of the world."
This wealth was accumulated in part because Boomer families were smaller, meaning few mouths to feed, but more importantly because starting in the 1970's, women started joining the workforce in greater and greater numbers.
It doesn't take a math genius to figure the impact to household wealth if you have two earners rather than one.
Fast forward to 2020 and many Boomers who were close to retirement or working past retirement had enough assets to step out of the workforce when COVID hit because they no longer needed to work.
The sheer fact that the Boomer population was so large means that their retirement will be taking very large numbers of people out of the workforce.
Lastly, many of the Boomers departing will come from senior leadership positions attained after gaining decades of experience. This loss causes a significant drop in labor productivity.
Record-low Labor Force Participation Rates
The unprecedented wealth that allowed many Boomers to retire early, has had a profound effect on their children.
The Sansdemic Report notes that, "millennials are expected to inherit an estimated $68 trillion from their boomer parents by 2030, which will make them the wealthiest generation in history."
This level of financial security has created a much reduced sense of urgency for Millennials, in particular, to get a job or move out of their parent's house.
According to the Report, "In 2014, for the first time since 1880, more men 25-34 years old were living with their parents than with a spouse. For 25–29-year-olds, that percentage was an astounding 25%."
Two additional drivers of the low labor force participation rate (LFPR) for prime-age men (age 25-54) are the opioid epidemic and working part-time rather than full-time jobs.
The Sansdemic Report cites research which links opioid prescription rates and labor force participation for both men and women.
The research estimates that for certain locations in the US, "solving the opioid epidemic would increase the LFPR for prime-age males by over 4 percentage points."
While the Great Recession forced many prime-age male workers to take part-time jobs because work in the construction and manufacturing industries dropped so significantly, many of these men opted to remain in part-time work even after the recession had passed and the economy returned to full employment.
Not only did many not feel a sense of urgency because of financial help from their parents, believe it or not, research shows a correlation between the decrease in hours worked for men ages 21-30 and the exact same number of hours spent playing video games.
This same research found that, "many of these men do not have a bachelor’s degree, and the data shows they are postponing marriage, child rearing and home buying until their 30s."
The Real Impact of a Demographic Drought
For most people, the impacts of a demographic drought on the labor markets may seem removed from their everyday life, but effects will be felt by everyone.
Increased Cost of Goods and Services Most businesses in a struggle to find workers for their open positions are being forced to offer higher wages to remain competitive in the labor market. This inevitably leads to a higher cost to consumers for the goods and services they purchase.
Lower Gross Domestic Product While the huge increase in workers created by the Boomers, including adding women to the labor force, jumped real US GDP from $2 trillion in 1947 to a whopping $15.3 trillion by 2009, the vanishing workforce will cause the opposite to occur.
Lower Standards of Living Fewer workers means fewer people to deliver our packages and food, fewer people to transport goods from manufacturers to retail outlets, fewer people to provide health care in dental offices and hospitals, fewer people to cut hair, serve food, clean hotel rooms, and the many, many other things we've come to expect as part of our modern standard of living.
Declining Higher Education System Our colleges, universities, and community colleges were built to handle an ever increasing number of students, but that number is now reversing, not only from a shrinking population but also fewer people choosing to participate in secondary education.
Graphic: Vex Robotics
Overcoming Drought Conditions
The demographic drought is not going to subside any time soon, if at all, and the United States and the rest of the developed world will be reckoning with a labor shortage for a long time into the future.
The good news is that there are options for managing the challenges, and we're already taking advantage of some of those options
Technology and Automation Robots have been a part of the manufacturing industry for decades, and even play an important role in the field of medicine.
Automation by computers has made work done by humans more productive and efficient.
Even though there are limits to the gaps that technology can fill, including areas that require leadership, problem solving, collaboration, and the "human touch", continued advancements in technology will nonetheless be part of an "all of the above" solution to fewer workers.
Immigration If we can't grow our population from within, the next best thing is to add to our population from without.
Fortunately, the United States is a favored destination for immigrants from all over the world.
Unfortunately, immigration policy in the United States has been so hyper politicized over the past 10 to 20 years, that the opportunity to take advantage of this option for solving our demographic drought remains elusive.
An updated report published in 2022 titled, "The Demographic Drought, Bridging the Gap in our Labor Force" (the "Gap Report"), notes that we currently have more than 4 million people awaiting work visas.
Finding the political will to clear this backlog of immigration might actually turn portions, maybe large portions, of illegal immigration into legal immigration.
Bring Existing Workers Back The Gap Report makes great suggestions for enticing early retirees back to work with flexible work schedules, part-time jobs, and providing health care and other benefits for their part-time positions.
Investments from both the public and private sector to address the opioid epidemic will free up workers on the sidelines, and providing a child care benefit will allow more women to be a part of the workforce.
Be More Freedom Focused
Both the Sansdemic and Gap Reports stress the importance of "valuing people more".
The Boomer generation provided employers with a plentiful number of workers, many who were highly educated. This allowed employers to not only be choosy about who they hired, but also allowed them to dictate how and when employees performed their work.
In the sansdemic, all the rules have changed, and the sooner employers shift their thinking and approach to hiring and managing their teams, the better off they will be.
If people are an organization's most valuable asset, then employers must do everything they can to retain the employees they have and, as the Gap Report states, embrace the "job freedom mentality" which includes flexible hours, contract work, and remote and hybrid work options.
Organizations that are Freedom Focused fully embrace this emphasis on building, and retaining, a strong team that is fully aligned, engaged, and excited to be a part of a very positive future for the organization and for themselves.
With a crystal clear vision for the future and clearly identified core values integrated into every decision and action of the organization, if your business is Freedom Focused, you and your team will be able to weather the demographic drought better than your competition.
At the same time, you will be realizing greater personal and professional freedom, but not if you don't stay...
Focused on your freedom!
Listen to the podcast episode: #030 Navigating the "Demographic Drought"