Dartmouth College economist James Feyrer noticed something odd about a decade ago: Across a large set of countries, an economy’s productivity seemed to be connected to the proportion of fortysomethings in its labor force. The higher the ratio of people age 40-49, the faster the economy tended to increase its output per hour of work. To be precise, Feyrer wrote in a 2005 working paper, “a 5 percent increase in the size of this cohort over a ten year period is associated with a 1-2 percent higher productivity growth in each year of the decade.”
The finding was bad news when Feyrer’s paper came out, because the sweet-spot age group was shrinking as a share of the U.S. labor force. Now, though, fortysomethings’ share is close to bottoming out—which means one substantial negative for productivity growth is going away. “The drag is nearly done,” Jay Shambaugh, a member of President Obama’s Council of Economic Advisers, said in a September speech.
The notion that people in their 40s make a special contribution to a nation’s productivity seems strange to a lot of people (presumably even some who are in their 40s). In 2012 the National Research Council’s Committee on the Long-Run Macroeconomic Effects of the Aging U.S. Population called Feyrer’s calculations “implausible” and said that the effect of age composition of the workforce over the next two decades would probably be “negligible.”
But Jason Furman, who’s chairman of the Council of Economic Advisers and just happens to be 46, says research done in the U.S. and several other countries since the National Research Council’s report had supported Feyrer’s original result. Why it should be so is less clear, but Furman says workers in their 40s seem to have “a good balance of experience and creativity.” He emphasizes that he isn’t denigrating younger or older age groups.
The proportion of fortysomethings in the labor force has been all about the Baby Boom. When boomers began reaching 40 in the mid-1980s and early ’90s, the share grew; it fell as boomers aged starting around 2005. The International Labor Organization, a United Nations agency, sees fortysomethings’ share of the labor force hitting a low of 20 percent in 2020, then drifting up to 22 percent around 2035 as the bulge of boomers’ children begins to reach the big 4-0.
The bottom line: Productivity has been growing weakly for the past decade. A drop in the share of workers in their 40s coincides with that trend.