Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Labor Market
Transcript
- Lucas: So the Bureau of Labor Statistics just updated their data on the 16-to-24 age group. And the number is pretty stark: since 2010, that cohort has shrunk by nearly eight percent. Luna: Eight percent — that's a million and a half fewer young people entering the workforce than we would have had fifteen years ago. Lucas: Exactly. And that's not just a number on a spreadsheet. It means restaurants, retailers, construction firms — they're all competing for a smaller pool of entry-level labor. And the competition is driving up wages faster than we've seen in decades. Luna: I saw that Chipotle now starts crew members at 18 dollars an hour in some markets. That's not fast food money anymore — that's a living wage in parts of the country. Lucas: Right. And it's not just Chipotle. McDonald's, Walmart, Target — they've all bumped starting pay significantly. But here's the thing: raising wages only works if you can pass those costs along or offset them with productivity gains. And in many cases, companies are turning to automation. Luna: That's the other side of the demographic coin. Fewer workers means either wages go up or machines replace them. Or both. Lucas: Both is what we're seeing. In fast food, self-service kiosks are now the norm. In warehouses, robotic pickers are handling more of the load. And in construction — which has a really aging workforce — they're experimenting with modular building techniques that require fewer people on site. Luna: But those automation solutions aren't free. They require capital investment, which favors larger companies. Smaller businesses — the mom and pop shops — they're getting squeezed. Lucas: That's a really important point. The labor shortage is accelerating consolidation in a lot of industries. If you can't afford the robots or the higher wages, you either close or get acquired. Luna: And that changes the character of main street. So what's the big macro takeaway here? Is this a net positive or negative for the economy? Lucas: It's complicated. On one hand, tighter labor markets are great for workers — especially young workers who used to have very little bargaining power. Wage growth for the bottom quintile has outpaced inflation for the last few years. That's a real win. Lucas: On the other hand, a shrinking labor force puts a ceiling on GDP growth. The U.S. economy has historically grown by adding more workers. If that tap is turning off, we have to rely entirely on productivity gains. And productivity growth has been stubbornly slow for decades. Luna: So we need a productivity miracle, or we need more workers. And immigration is the obvious lever, but politically it's a minefield. Lucas: Exactly. Legal immigration levels have been essentially flat for years, even as the native-born workforce ages. The Congressional Budget Office estimated that if we raised immigration to two hundred thousand more people per year, it would add about a trillion dollars to GDP over a decade. But that's not happening right now. Luna: And it's not just about quantity — it's about skills. We need workers in healthcare, in tech, in skilled trades. The birth rate decline means we're not producing enough native-born workers to fill those roles, especially as boomers retire. Lucas: Which brings us to a kind of irony. For decades, we worried about automation stealing jobs. Now the bigger fear might be that we don't have enough people to do the jobs that still need doing. Luna: Before we go further — I want to mention something related. We've been talking about how demographic shifts affect industries and wages, and it strikes me that conversations like this are exactly why we keep this show ad-free. We don't take sponsors, we don't run commercials. It's just us digging into the data. Lucas: Absolutely. And if you find value in that — if walking through the economy with us has made something click — you can support the show at buy me a coffee dot com slash fexingo. It's a simple way to keep the podcast independent and focused on the substance, not the ads. Luna: Yeah, no pressure at all. Just if it's worth a coffee to you, the link is there. Now, back to the labor market — Lucas, you mentioned productivity. Can we actually get the productivity gains we need? Lucas: It's possible, but it requires a shift in how we invest. Historically, productivity gains come from capital deepening — more machines and better technology per worker. But we've underinvested in infrastructure, in R&D, in workforce training for years. Lucas: The good news is that the private sector is starting to respond. Capital expenditure on automation and AI has been rising fast. But it takes time for those investments to show up in the productivity numbers. Luna: And there's a human cost too. When a young worker is replaced by a kiosk, they lose that entry-level job that used to be a stepping stone. We've seen research that early career unemployment can have long-lasting effects on earnings. Lucas: That's the flip side. Automation can be a double-edged sword. It might boost overall productivity and wages for those who remain, but it can also close off pathways for the least experienced workers. Luna: So what's the policy prescription here? More immigration, more investment in education and training, and maybe a more aggressive industrial policy to encourage automation in a way that doesn't leave people behind? Lucas: I think that's the conversation we need to be having. But policy moves slowly, and demographics are already baked in for the next twenty years. The number of twenty-year-olds in 2040 is pretty much determined by how many babies were born in 2020. And we know that number was low. Luna: Right — the COVID baby bust was real. The U.S. birth rate fell to about 1.64 births per woman in 2020, down from 2.12 in 2007. That's below replacement level. Lucas: Below replacement means the population eventually shrinks, absent immigration. And we're seeing the effects already in the labor market. The prime-age labor force participation rate — people 25 to 54 — is actually pretty high, near multi-decade highs. The problem is the pipeline. Fewer young people coming in means the overall labor force growth is anemic. Luna: So the restaurant that can't find dishwashers, the construction site that can't find apprentices — that's not a temporary blip. That's the new normal. Lucas: Unless something changes. And one thing that could change is if companies get serious about training and retention. We've seen some employers start offering tuition reimbursement, flexible schedules, even help with housing to attract young workers. Luna: That's a shift from the old model of 'you're lucky to have a job.' Now it's 'we're lucky to have you.' And that gives young workers more leverage to demand better conditions and higher pay. Lucas: And that's not a bad thing. A tight labor market is one of the most powerful tools we have for reducing inequality. When wages rise at the bottom, it lifts a lot of boats. Luna: But it also puts pressure on companies to innovate. If you can't find workers, you have to find a way to do more with less. Lucas: And that innovation — whether it's automation, process improvements, or new business models — is ultimately how living standards rise. So maybe the demographic headwind forces a kind of productivity revolution that we've been trying to achieve for decades. Luna: That's a hopeful note. But it's not guaranteed. It depends on how businesses and policymakers respond. Lucas: Absolutely. And that's what we'll be watching in the years ahead. For now, the data is clear: fewer young workers are entering the labor force, and that is reshaping the economy from the ground up.