South Florida Sun-Sentinel Palm Beach (Sunday)
America’s missing employees
Retirees are 1 reason the Fed has given up on a big rebound in the workforce
Alice Lieberman had planned to work for a few more years as a schoolteacher before the pandemic hit, but the transition to hybrid instruction did not come easily for her. She retired in summer 2021.
Her husband, Howard Lieberman, started to wind down his consulting business around the same time. If Alice Lieberman was done working, Howard wanted to be free, too, so that the pair could take camping trips and volunteer.
The Liebermans, both 69, are one example of a trend that is quietly reworking the fabric of the American labor force. A wave of baby boomers has recently aged past 65. Unlike older Americans who, in the decade after the Great Recession, delayed their retirements to earn a little bit of extra money and patch up tenuous finances, many today are leaving the job market.
That has big implications for the economy, because it is contributing to a labor shortage that policymakers worry is keeping wages and inflation stubbornly elevated. That could force the Federal Reserve to raise rates more than it otherwise would, risking a recession.
About 3.5 million people are missing from the labor force, compared with what one might have expected based on pre-2020 trends, Jerome Powell, the Fed chair, said during a speech in November. Pandemic deaths and slower immigration explain some of that decline, but a large number, roughly 2 million, have simply retired.
And increasingly, policymakers at the central bank and economic experts do not expect those retirees to ever go back to work.
“My optimism has waned,” said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution. “We’re now talking about people who have reorganized their lives around not working.”
Millions of Americans left or lost jobs in the early months of the coronavirus pandemic. Child care disruptions, COVID19-induced disability and other lingering effects of the pandemic have kept some people on the sidelines. But for the most part, workers went back quickly once vaccines became available and businesses reopened.
Older workers were the exception. Among Americans ages 18 to 64, the labor force participation rate — the share of people working or actively looking for work — has largely rebounded to early 2020 levels. Among those 65 and older, on the other hand, participation lags well below its pre-pandemic level, the equivalent of a decline of about 900,000 people.
The resulting labor shortages have reverberated through the economy. Consumers are still shopping, and understaffed firms are eager to produce the goods and services they demand. As they scramble to hire — there are 1.7 job openings for every jobless person in America — they have been raising wages at the fastest pace in decades.
If many of the workers are permanently retired — as policymakers increasingly believe is the case — bringing a hot labor market back into balance will require the Fed to push harder.
It can do that by raising rates to slow consumer spending and business expansions, tempering the economy and slowing hiring. But the process is sure to be painful and could even spur a recession.
Having fewer workers available “lowers the landing pad that the Fed has to lower the economy onto,” Edelberg said. “Because of what’s happened in the labor force, they just have to soften growth even more.”