Wiggle Room In The Workforce
Has the amazing U.S. labor supply finally been depleted? Since 1995, the labor force has been growing significantly faster than the working-age population. The trend validated the view that the potential supply of workers was far larger than the jobless rate suggested, and that better employment prospects would pull a lot of bystanders into the labor market. And it has helped keep inflation and labor costs at bay.
Now, as his latest testimony before Congress indicates, Federal Reserve Chairman Alan Greenspan is concerned that the pool of potential workers is finally running dry. Unless the economy slows markedly and soon, he implies, the Fed may have to step in to keep wage pressures from erupting.
Not everyone agrees. James W. Paulsen of Norwest Investment Management thinks the Fed still has wiggle room before tapping the brakes. Providing this breathing space, he says, are a lot of the very workers who took it on the chin when the decade began: those in the 55-to-64 age group.
In the last 2 1/2 years, notes Paulsen, this "over the hill" group, which represents only 9% of the labor force, has accounted for more than 1 million jobs, almost 22% of the nation's total job gains. Over the same period, those same workers have taken on jobs at a 3.45% annual rate, more than twice as fast as the overall population. In the past 12 months the rate has surged to 4.1%, vs. 1.8% for all other workers (chart).
The comeback of older workers helps explain the puzzling surge in labor force growth in the past two years. Paulsen points out that the participation level in the workforce of men in this age group, which fell steadily from about 88% in the 1950s to 65% a few years ago, has climbed back to 67.6%. And after stagnating for 20 years, the percentage of working women in the 55-to-64 age group has jumped from 43% to 51% in the past decade.
What's behind these trends? On the supply side, Challenger Gray & Christmas Inc., a Chicago-based employment firm, points to a new breed of "restless retirees" who are bored with full-time leisure. On the demand side, many companies that jettisoned older workers during downsizing now find their talents and experience desirable. And because many older workers were traumatized by layoffs, their wage demands remain subdued.
With no sign that the employment growth among senior workers is slackening, Paulsen thinks they may continue to provide a cushion against wage pressures in the year ahead. "They're healthier than ever," he notes. "Many are eager to work, and finally they're really in demand."