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Futurework
  Trends and Challenges for Work in the 21st Century
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Opinions and views in these papers are those expressed by the author(s). They are not to be taken as expressions of support for particular positions by the Department of Labor. Please do not cite these papers without prior permission of the author(s).

AN OVERVIEW OF ECONOMIC, SOCIAL,
AND DEMOGRAPHIC TRENDS
AFFECTING THE US LABOR MARKET

Robert I. Lerman
Stefanie R. Schmidt

The Urban Institute
Washington, D.C.

I. Demographic Change and the Future Workforce

Important demographic trends will take place in the workforce over the next 10-15 years. The emerging patterns are the result of ups and downs in birthrates (low in the late 1920s and early 1930s, high in the late 1940s through the early 1960s, and modest growth in the late 1970s through the early 1990s). The population and labor force will continue to diversify, as immigration continues to account for a sizable part of population growth. Projections suggest that the Hispanic and Asian shares of the population will rise from 14 percent in 1995 to 19 percent in 2020.

BLS projections imply that over the next decade, 40 million people will enter the workforce, about 25 million will leave the workforce, and 109 million will remain. Although only a modest reduction will take place in the overall growth in the workforce (from 1.3 percent per year to 1.1 percent per year), the composition of growth will generate rising shares of young (under 25) and older (45 and over) workers and a decline in the share of middle-age workers.

These trends constitute a sharp reversal of the last decades. Consider the trends in the youth labor force (16- to 24-year-olds). After declining by 9 percent from 1986 to 1996 and not growing between 1976 and 1986, the youth labor force will keep pace with the overall labor force with an expected 15 percent increase over the next decade. More dramatic are the changing patterns of growth among prime-age workers and older workers. The prime-age group of 25- to 54-year-olds accounted for virtually all the workers added to the labor force over the last two decades. Between 1976 and 1996, 38 million prime-age workers and 1.7 million workers 55 and over joined the labor force, while reductions in the youth labor force amounted to about 2.1 million.Over the next decade, instead of having nearly all increases in employment coming from the 25- to 54-year-old age group, fewer than one in three (31 percent) of the added workers will be in this category. Nearly half of the additional workers will come from the 55-and-older category, while about one in five will come from the youth labor force.

The overall reversal in the prime-age category of workers masks a major change within the group. Note in Table 1 that the most experienced workers (45- to 54-year-olds) will expand rapidly enough to raise their share of the labor force. At the same time, declines will take place in the absolute numbers of 25- to 34-year-olds and of 35- to 44-year-olds. As a result, the proportion of 25- to 44-year-olds in the labor force will decline from 52.6 percent in 1996 to 44.5 percent in 2006. Workers in the 45+ categories will raise their demographic share from 32 percent to 39 percent. These are large and dramatic changes for a decade. The labor force share is increasing among older workers (from 28.8 percent to 36.2 percent among 45-to 64-year-olds) and younger workers (from 15.8 percent to 16.4 percent among 16- to 24-year-olds). However, the proportion of workers beyond the normal retirement age of 65 will remain below 3 percent.

The specific trends in the age composition of the workforce vary with future time periods and are subject to uncertainty related to labor force participation rates. The aging of the population is largely the result of boom in births during the 1946-64 period. Over the coming decade (through 2005), substantial growth will occur among 45- to 64-year-olds, but the number over age 65 will increase only modestly (by 5 percent). However, between 2005 and 2010, the population of 65- to 69-year-olds will rise by 17 percent and then explode by another 37 percent in the 2010-2020 period. The jump in the 70 and over population will occur between 2010 and 2020, rising by 38 percent from 24.6 to 31.8 million people.

Table 1: The Changing Mix of the US Labor Force by Age, Ethnicity, and Sex:

1976-2006

  1976 1986 1996 2006

Total Labor Force

96,158

117,834

133,943

148,847

Percentage of the Labor Force

Age

16-19

9.4

6.7

5.8

6.0

20-24

14.9

13.1

10.0

10.4

25-34

25.2

29.4

25.3

20.7

35-44

18.0

23.1

27.3

23.8

45-54

17.7

15.1

19.7

23.6

55-64

11.9

10.1

9.1

12.6

65-74

2.6

2.2

2.4

2.2

75+

0.4

0.4

0.5

0.6

Ethnicity

White, Non-Hispanic

N/A

79.8

75.3

72.7

Black

N/A

10.7

11.3

11.6

Hispanic

N/A

6.9

9.5

11.7

Asian

N/A

2.9

4.3

5.4

Age within Sex

Males

59.5

55.5

53.8

52.6

16-24

22.3

18.7

15.5

16.4

25-39

35.3

42.6

39.7

32.4

40+

42.4

38.7

44.8

51.2

Females

40.5

44.5

46.2

47.4

16-24

27.2

21.2

16.2

16.4

25-39

33.1

42.1

38.9

31.7

40+

39.7

36.7

44.8

52.0

Source: Howard Fullerton, ALabor Force 2006: Slowing Down and Changing Composition, Monthly Labor Review, November 1997, p. 23-38.

How these figures translate into labor force participation is a major question mark. Among older workers, there are a variety of relevant factors. Private retirement pensions will cover an increasing share of workers 65 and over and thus should encourage retirement. However, older workers will increasingly be drawn from those with college degrees or some years at college and fewer will be high school dropouts. In 1997, 27 percent of 60- to 69-year-olds lacked a high school degree or equivalent and only 18 percent had a BA degree. In one decade, only 17 percent of 60- to 69-year-olds will be without a high school degree and 27 percent will have earned a BA degree. Since educated workers participate in the workforce at substantially higher rates than less educated, the country could see a reversal of past trends in labor force participation rates. In one such scenario, the Hudson Institute predicts substantial increases in the labor force participation rates of the 55-and-older population. Participation rates of male 55- to 64-year-olds would return to 1970 levels, and about half of 65- to 70-year-old men would work. While these upward shifts appear unlikely, even moderate growth in participation by older workers would significantly raise the growth of the overall labor force beyond what is currently projected. Poll data support this claim, indicating that most baby boomers expect to work beyond age 65.

Outside the U.S., other OECD countries also exhibit the trend toward an older labor force. Between 1995 and 2030 the proportion of the labor force made up of 45- to 59-year-olds is projected to increase from 25.6 percent to 31.8 percent in the OECD as a whole, while the share of workers ages 60 and over is projected to rise from 4.7 percent to 7.8 percent. Increases in the educational attainment of older workers, together with the increasing demand for skilled workers, may raise the share of older workers further by stimulating higher labor force participation rates. In OECD countries as a whole, the proportion of 45- to 59-year-olds with more than a high school degree will rise from about 21 percent in 1995 to 30 percent in 2015. Although the U.S. will see minimal educational gains in this age group, the educational attainment of U.S. workers over age 60 will rise significantly. Policy measures, such as raising the official retirement age and lessening financial disincentives to work, may encourage delays in retirement.

Shifts in the ethnic composition of the workforce will continue the patterns of recent decades. Immigrants will account for as much as half of net population growth over the next decades. Between 1996 and 2006 white non-Hispanic entrants will make up 49 percent of new labor force entrants, up from 43 percent during the previoU.S. decade, but well below the 1995 level of 76 percent. As a result, the share of non-Hispanic whites will fall to 73 percent in 2005. Of the nearly 15 million worker increase in the 1996-2006 period, about 7 million will be Hispanic or Asians. Hispanic-Americans will raise their share of new workers slightly from 29 percent to 31 percent, as will Asian-Americans, whose share will grow from 14.5 percent to 15.7 percent. By 2020, white non-Hispanic workers will make up only 68 percent of the workforce.

One concern about the changing ethnicity is the potential impact on the educational structure of the workforce. Hispanic workers have the lowest educational attainment of any major ethnic group; only 55 percent of the Hispanic population over age 25 had completed high school as of 1997, well below the 85 percent completion levels among non-Hispanics. Thus, unless Hispanic youth and immigrants raise their educational attainment, their growing presence in the job market will lower the educational base of the labor force at the very time when the demand for skills is continuing to increase. The expanding share of Asians in the labor force will moderate this trend, since their educational attainment is higher than the rest of the workforce. As of 1997, 42 percent of Asians over 25 had at least a BA degree, well above the 23 percent rate for the overall population. As a whole, immigrants have an educational profile that embodies higher proportions lacking a high school diploma, but the same share of college graduates as non-immigrants.

While the last two decades witnessed significant increases in the share of women in the workforce (rising from 40.5 percent in 1976 to 46.2 percent in 1996), the female share will barely increase over the next decade. Still, by 2006 women will account for nearly half (47 percent) of the workforce. However, given the age composition shift away from the 25- to 44-year-olds, a declining share of women workers will be mothers with young children.

Changing marital and living arrangements could have significant implications for the workforce. Labor force participation rates are much higher and unemployment rates much lower among married than among unmarried men and women. Even in today's tight job market (1998:1), unemployment rates are high among individuals who are in the never-married category. Never-married men experienced an 8.2 percent unemployment rate, far below the 2.1 percent rate among men who are married and living with a spouse. In addition, labor market outcomes are better among men living with at least one of their own children than among men with no children. The unemployment rate of never-married men is only 5.7 percent among those with children, but over 8 percent among those without children. Projections indicate that the share of American households consisting of families with children will decline from 48 percent to about 41 percent and that married-couple families with children will make up less than one-third of families by 2010. To some extent, it is changes in employment opportunities that cause changes in marriage and family formation patterns and not the other way around. However, some of the marital and family changes have other causes and may well lead to worse job market outcomes.

Demographic trends will vary substantially by region of the country. Population growth will be much more rapid in the West and South than in the Northeast and North Central regions of the country. Projections suggest that California alone will add about 10 million people by 2015, or 22 percent of the nation=s total population growth. Texas and Florida will add close to another 10 million people. These three states, which currently account for about 25 percent of the U.S. population, will absorb 44 percent of the nation=s population growth. The growth of these states can be attributed to the fact that immigrants will continue to make up a large share of net population growth and they tend to concentrate in a few states. In 1996, for example, over two of three immigrants declared their intended state of residence as California, New York, Texas, Florida, New Jersey, or Illinois. These states absorb an even higher share (perhaps 85 percent) of the illegal immigration.

Selected Implications of the Changing Demographics

The declining proportion of middle-age individuals in the workforce has a number of implications. First, rising shares of workers will have over 25 years of experience or less than seven years of labor market experience. Fewer will be in their early careers. The age shifts in the labor force should exert little or no impact on the aggregate unemployment rate. Given today's unemployment rates within age categories, the overall unemployment rate in 2006 will be identical to today's average rate. Changes in the age distribution of the workforce will neither raise nor lower the overall unemployment rate.

Second, the declining numbers of 25- to 34-year-olds, together with their changing ethnic mix, may portend shortfalls in key professional areas. The number of earned BA degrees will remain constant over the next decade (at about 1 million per year) despite the rising demand for skilled workers and the increasing size of the labor force. As a result, new BAs will decline as a proportion of all new entrants to the labor force from 32 percent in the 1986-96 period to 30 percent over the following decade.

Third, demographic trends raising the percentage of older workers and potential workers have implications for individual, firm-based, and government training. According to a recent OECD report, the U.S. is distinctive in that training peaks in the 45- to 54-year-old years and drops off only moderately among the 55-to 64-year-olds. Table 2 shows that while older U.S. workers are more likely to obtain training than older workers in other countries, U.S. firms are less likely to finance training for younger workers than firms in other countries. Still, to the extent that the U.S. attempts to raise participation rates of older workers, the current moderate amounts of training provide a base on which to build. Labor markets are generating jobs with higher skill requirements, but taking advantage of these opportunities requires expanded training opportunities, especially among older workers trying to avoid the effects of obsolescence. Since firms generally do not train less educated workers, the growing number of older, less-educated workers are likely to place an added strain on the public training system.

The decline in labor force participation with age is also highest among less-educated workers. Part of the reason is that their limited skills leave them with only low-wage options. Another explanation is that their Old Age Insurance under social security provides a higher-than-average replacement rate. Still, concern for the plight of this group causes many people to oppose raising the retirement age. Thus, effective training for the less educated could have a large payoff, first because of the enhanced capabilities of older trainees and second because their improved job accessibility may allay concerns over changing incentives under social security for all older workers.

Table 2: Participation in Job-Related Education and Training and Professional Training by Age Group in the US and Other Selected Countries

(Text Only)

 

% Participating in job-related continuing education and training

% Participating in professional and career upgrading training

 

Total

Paid by the employer

Total

Paid by the employer

United States

All Workers

44.5

31.7

29.7

24.1

15-24 year-olds

42.4

11.7

9.4

6.2

25-44 year-olds

46.4

36.2

32.5

26.9

45-54 year-olds

45.7

36.2

35.8

29.4

55-64 year-olds

36.8

25.8

28.4

21.4

United Kingdom

All Workers

50.2

39.2

15.4

12.9

15-24 year-olds

55.6

30.3

14.4

12.1

25-44 year-olds

55.2

46.3

18.1

15.0

45-54 year-olds

42.8

35.3

13.1

11.1

55-64 year-olds

32.1

27.2

8.6

7.4

Switzerland

All Workers

31.9

20.1

26.0

16.8

15-24 year-olds

34.5

23.5

21.0

12.6

25-44 year-olds

33.9

20.9

28.7

17.8

45-54 year-olds

29.7

18.9

25.6

18.8

55-64 year-olds

25.2

15.9

20.7

12.9

10-Country Average

All Workers

34.2

22.7

20.6

14.9

15-24 year-olds

38.8

16.0

15.2

9.1

25-44 year-olds

35.6

25.7

22.8

16.8

45-54 year-olds

30.8

22.6

21.1

15.8

55-64 year-olds

23.3

17.4

15.4

11.5

Source: Employment Outlook: June 1998, OECD, 1998, p.140, Based on International Literacy Survey.

Public training programs such as JTPA are likely to face rising shares of older workers among eligibles seeking services. The majority of older workers calling on JTPA services have utilized the displaced worker program and not the standard training programs. However, the share of young people is growing as well, especially among groups traditionally eligible for programs for the disadvantaged. Thus, JTPA will simultaneously see increases in the job displacement problems of older workers and in the initial training requirements for young workers.

From the standpoint of employers, there are advantages and disadvantages in hiring older workers. Their health care costs are disproportionately high and, since many will have more seniority than younger workers, they may receive higher pay and qualify for longer vacations. On the other hand, older workers are less likely to move and less likely to have an accident at work (though it takes longer for them to recover).

Third, a declining share of workers will have very young children. Women in the 25-44 age category will make up 21.1 percent of the workforce of 2006, down from 24.2 percent in 1996. These figures incorporate an expected rise in the labor force participation rates of 25- to 44-year-old women from 76 percent to 79 percent. On the other hand, more women and men will have to care for elderly parents.

Fourth, the workforce will increasingly become more heterogeneous by educational status and by gender. The proportions with BA degrees are especially variable by ethnic status among younger workers. As of March, 1997, a striking 51 percent of Asian 25- to 29-year-olds had earned a BA, compared to 29 percent of whites, 14 percent of blacks, and 11 percent of Hispanics. Except for Hispanics, rates of high school completion were similar across groups, at about 85 percent. Another recent phenomenon is the emerging gender differences among black and Hispanic workers. Among 25- to 29-year-olds in the labor force, 20 percent of black women but only 13 percent of black men had earned BA degrees; among Hispanics, 17 percent of women but only 9 percent of men had graduated college. These educational patterns are indicative of broader trends indicating that minority worker problems are becoming more concentrated among men.

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