Secular inflation regime change firmly rooted in the three ‘D’s
This analysis is by Bloomberg Intelligence Director of Equity Strategy, Chief Equity Strategist Gina Martin Adams and Senior Associate Analyst Gillian Wolff. It appeared first on the Bloomberg Terminal.
Labor-force participation has declined worldwide since 1990, a secular trend likely to aid long-term inflation by pushing wages higher and margins lower. The number of work-aged people in the US is shrinking due to immigration restrictions, aging baby boomers and a falling fertility rate, as childcare and paternal-leave policies cause women to leave their jobs, exacerbating shortages.
Shifting labor dynamics offer a long-term boost to inflation
Labor-force participation has declined worldwide since 1990, a secular trend likely to aid long-term inflation by pushing wages higher and margins lower. The number of work-aged people in the US is shrinking due to immigration restrictions, aging baby boomers and a falling fertility rate, as childcare and paternal-leave policies cause women to leave their jobs, exacerbating shortages.
Global labor decline led by US and EM
Labor is continually becoming more scarce, according to World Bank data. Global labor-force participation has been in secular decline for 30 years, falling to just 60.5% in 2019 from 65.5% in 1990. Participation was 59% as of 2021, slightly above its 2020 low of 58.6%. Emerging nations that are relied upon for cheap workers have recorded broad declines in labor-force participation. China’s participation rate was 68.1% by 2021 from 76.8% in 2000, while India’s fell to 45.6% from 57.2% over the same time. Thailand, the Philippines and Brazil recorded similarly large declines.
Participation in the largest developed nations has been steady over the past two decades, rising in Germany and Australia, except for in the US, where it peaked in 2000 at around 66% and was 60.7% by 2021.
Labor-force participation 2000 vs. 2021
Aging population partly to blame for scant US supply
An aging population is the key driver of declining labor-force participation in the US. Overall participation rose across all age groups in 2010-19, but the percentage of the population aged 65 and older — which participates in the labor force at a much lower rate — increased. Participation for the 65-plus cohort in 2022 is roughly 19%, up significantly from 2000, when it was about 13%. However, the rate among 20-64 year olds is in the high 70% range. As baby boomers (over 20% of the US population) age, younger groups have been unable to fill the market gap.
People aged 25-64 outnumbered those 65-plus by more than 4.2:1 in 2000, but were just 3.1:1 by 2020. The BLS estimates that by 2030, that same cohort will only outnumber the 65-plus group by 2.4:1.
Working-age population shrinking vs. 65-plus
US males have dropped out of labor force for decades
The aging population is only half the story behind declining US labor-participation rates — the percentage of males working has been declining for nearly 70 years. Education appears primarily to blame, as less-educated men have recorded the steepest declines in labor-force participation and the largest reductions in real wages, suggesting the demand curve for less-skilled labor has also shifted.
Many studies have blamed shrinking job opportunities for low-skilled workers and stagnant real-wage growth as key reasons for the decline of males in the labor force. However, the rise in the female participation rate may add to the pressure. Female participation increased to over 60% by 2000 from just 34% in 1950 and may have made non-participation more affordable for spouses.
US female vs. Male labor-force participation
Female labor-force gains have stalled in the US
The rise in female workers in the US offset the decline in male participation in the first half of the 20th century, as the females’ rate nearly doubled, but these gains declined over the past two decades. According to the World Bank, US female labor-force participation led other major developed nations at 59% in 1999, but by 2021 had dropped to 55.2% and is now behind Canada, Australia, the UK and Germany.
Many economists attribute this dropoff to a lack of supportive childcare and parental-leave policies in the US, and Covid-19 likely further exacerbated the problem. The UK and US were the only two major developed nations to post a decline in female labor-force participation from 2020-21.
Developed nation female labor-force participation
