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Over the last few years, I have shared concerns about our shrinking workforce and the need for an organized immigration system to combat what could be a long and grueling economic slowdown. You don’t need to be a demographer or hold an advanced degree in economics to see where we are headed. When birthrates decline, as they have in the U.S. since the 1990s, the labor force eventually shrinks, resulting in fewer people earning and spending money. The net result is less money being reinvested in the economy.
As stated in a recent Business Insider article by Callie Cox, “Labor supply may be an overlooked metric, but it points to a troubling economic chasm. The reasons for this shrinkage signal worrying shifts in America’s job market, and the consequences could be perilous. Over time, a smaller labor force presents a set of pernicious challenges: lower growth, lower tax revenue, and lower productivity.”
The trend lines are disturbing. Cox further explains: “The shrinking of the labor supply means that there simply aren’t as many people for American businesses to hire, which can distort other highly followed measures of economic health. Over the past three months, the unemployment rate has barely budged, despite corporate America adding a measly 35,000 jobs a month. Ironically, that seemingly good news is another downstream effect of the stalling labor supply. Unemployment is calculated by dividing the number of people who don’t have a job but are actively looking by the number of people in the labor force. A smaller overall labor force can therefore shrink the denominator in that equation, keeping the unemployment rate low while masking weakness in the underlying economy.”
The message to the business community and state policymakers is straightforward: fewer people mean lower school enrollments, fewer employees, lower output and production, a drop in demand for goods and services, and a shrinking tax base. The solution? More people.
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