A Shrinking U.S. Workforce Is Stifling Economic Growth

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The economic recovery from the Great Recession has been achingly slow, with unemployment staying well above the 7% mark despite long-running support from the Federal Reserve in the form of quantitative easing. Will we ever get back to where we once were, pre-financial crisis?

Unfortunately, the answer seems to be a resounding no. Experts note that, since the crisis began, the nation's Gross Domestic Product has fallen precipitously, and there is no real indication that things will be looking up anytime soon.

The reason? An ever-dwindling labor force, which included 866,000 discouraged workers as of August. To make things even tougher, those remaining on the job are being hobbled by a lower rate of productivity.

The financial crisis disabled the job market
As this chart shows, the labor force participation rate in the U.S. has been dropping off quite alarmingly since the financial crisis kick-started the recession in 2007. 

Source: Bureau of Labor Statistics.

This is distressing for many reasons, not the least of which is that the nation's economic growth is being stunted, right along with the ebbing size of the workforce. A recent Forbes articles points out that, compared to the 2.99% average annual growth experienced during the years 1998 to 2007, the country's GDP only grew by an average of 0.73% from 2008 to 2013.

According to economists at JPMorgan, the future doesn't look much brighter. In a recent research paper, economist Michael Feroli notes that the primary ingredients necessary for economic growth -- an expanding workforce and increasing workplace productivity -- are missing since the recession, and a comeback to pre-recession levels isn't probable.

Where did all the workers go?
There are several reasons for the contraction of the labor force, one of which is the makeup of the population. Feroli points out that there are fewer working-age persons in the labor pool these days because of decreases in immigration and the fact that baby boomers are retiring in droves. This makes sense, of course, but what about all those workers who have just stopped looking for work?

JPMorgan economists David Kelly and Brandon Odenath, in yet another report, claim that the reason so many have dropped out of the job pool is because they now collect Social Security disability benefits. Indeed, the Heritage Foundation notes that fully 6% of the U.S. adult population was receiving disability benefits in 2012, compared with 5.3% in 2007.

A third reason for the declining workforce is that many more Americans are now enrolled in college -- 6.6% in 2012 compared to 5.8% in 2007. While notable, this seems the least problematic of all, since these persons are most likely preparing to enter, or reenter, the labor force.

Productivity is suffering, too
There is another issue, however, and it directly impacts the nation's withering GDP. Feroli notes that for those currently employed, productivity isn't what it used to be. This isn't the fault of the workers, but is because employers are not keeping up with technological advances that can improve workplace productivity.

Part of the problem is that technology isn't improving at the breakneck pace it did during the 1990s, when productivity was gaining. This translates into less spending by companies that don't feel the extra expense is worth the minimal increases in innovation. This has the effect of dampening research and development, as well.

Not the whole story
Excluding the college attendees, the main reasons for the disappearing workforce are retiring baby boomers and the higher numbers of persons on disability. But, doesn't the lack of job opportunities weigh in here, too? The aforementioned experts give this issue short shrift, but I think it's central to the reduced-workforce problem.

For instance, Kelly and Odenath purport that those collecting Social Security disability payments are not actively looking for work. This is certainly true, since drawing disability severely restricts employment opportunities. But the authors seem to disregard the idea that recipients of disability benefits may have decided that the depressed job outlook made their chances of securing employment too low to contemplate. The Bureau of Labor Statistics reported in May of this year that, of the 23 million unemployed persons with a disability, over 80% said their disability was the greatest barrier to employment. Education, the next biggest barrier, was cited by only 14% of respondents.

As for baby boomers, the notion that their retirement is crimping the labor pool seems iffy at best. If the problem was a mere dearth of workers available to fill positions, then why is the youngest contingent of workers -- those aged 16 to 24 years -- experiencing a dismally high unemployment rate of 16.3%?

Comparatively, for workers aged 55 years and over, the rate of unemployment is a teensy 5.1%, even though the BLS deems this group to have the lowest workforce participation rate. It seems that many of the youngest members of the labor pool are not being offered job opportunities available to those who entered the workforce before them, which is only adding to the problem.

Can this trend be reversed?
With a shrinking workforce causing such injury to the nation's economy, changes need to be made. The most obvious one is for employers to take advantage of the available labor pool consisting of young people ready and willing to work.

It also seems apparent that companies need to invest more heavily in technology. While the pace of innovation may have slowed somewhat over the past decade, there is nonetheless a clear need to upgrade -- as evidenced by the reductions in labor productivity from 3.2% from 1996 to 2004 to only 1.5% from 2005 to the present.

Once again, the impetus for change lies with the U.S. business community, which must make adjustments if the economy is to thrive again. Doing so will be beneficial to workers and businesses, as well as investors -- who, as Kelly and Odenath note, will be affected by limited earnings growth. Workers and investors are standing by, ready to do their part. Let's hope American companies are willing to meet the challenge.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 05, 2013, at 10:30 AM, Harley117 wrote:

    The U S has evolved into a bloated government bureaucracy which saps a tremendous amount of resources from the private sector just to sustain itself. This in turn has engendered a dependency nanny state while hindering the private sector ability to create economic growth. Obama and Democrats are hell bent to continueing the growth of a dysfunctional government because it increases their political base.

  • Report this Comment On October 05, 2013, at 10:37 AM, sabebrush6 wrote:

    Work force has sure done well under the Democrat/obama administration. Are you impressed ?

  • Report this Comment On October 05, 2013, at 10:45 AM, jessejr wrote:

    Motley Fool makes honest and objective dissection of issues when it pertains to business companies or sectors, but when it comes to the economy, they are biased towards the liberal mantra. Like in this issue, they refuse to include the effectiveness or failure of the Food Stamps, long term jobless benefits, and fake disabled. Nor do they asses the real situation on the ground and try to go around the depressed areas and count the number of obese, couch dwellers, drug zombies, and bums who are able to live comfortably through welfare. Can't they candidly tell if the programs are failing to rehabilitate these dole out dependents, or how political parties benefit from doling out tax money, and how much tax hikes will be needed to pay back borrowed money used for welfare programs.

  • Report this Comment On October 05, 2013, at 11:50 AM, Chiara2 wrote:

    Thanks to the Tyrant - in - Chief and his socialized medicine American workers have become part timers!

  • Report this Comment On October 05, 2013, at 11:53 AM, MissDisplaced wrote:

    Corporate America got their wish! After years of outsourcing and keeping wages stagnant, they now have no one to actually buy their products.

    Good luck with that!

  • Report this Comment On October 05, 2013, at 2:36 PM, MDS156 wrote:

    TO: Amanda Alix, The Motley Fool

    FROM: Michael Dale Smith, Statesboro, GA

    I noticed where you avoided discussing the hiring of illegal aliens by criminal employers in the United States? Using cause and effect, do you think such behavior by criminal employers would affect the unemployment, the productivity and the participation rate of American workers, Ms. Alix?

    I know my question makes you, the Motley Fool, and Corporate America feel uncomfortable. But between you and me, Ms. Alix, I can tell you the

    American people know the answer. As a result, those like you in the economic arena need to quit

    avoiding the subject and to quit lying to the American people.

    To further support my argument, Ms. Alix, I want you to look closely at recent U.S. Bureau of Labor statistics. You will learn American corporations are hiring immigrants (legal and illegal) instead of American citizens. The immigrant job growth rate is nearly twice that of Americans.

    It is the "dirty little secret" no one wants to talk

    about. Therefore, please tell your friends in the business community to stop shouting about "labor shortages" in blue collar and in STEM jobs. No one is listening.

    Ms. Alix, before closing, never in my lifetime have I seen poor, working- and middle-Americans hurting as much as they are today. This economy

    is a disaster. And the federal government and Corporate America are to blame.


    Michael Dale Smith

    Statesboro, GA

  • Report this Comment On October 05, 2013, at 5:25 PM, mobadthangood wrote:

    How stupid is this.

    They are constantly laying middle class Americans off of work and then wanting to pay them minimum wage jobs and saying there's NOT enough in the workforce?


  • Report this Comment On October 05, 2013, at 5:58 PM, Holechaser69 wrote:

    The baby boomers are retiring while corporate greed moves the jobs out of the country.


    Keep running up the debt and kill off the middle class at the same time.

    Destiny awaits them!

  • Report this Comment On October 05, 2013, at 6:32 PM, awilldo wrote:

    Companies are laying off their older, experienced productive workers and replacing them with younger inexperienced workers. They are worried more about wages and profits than productivity.

  • Report this Comment On October 05, 2013, at 6:41 PM, Barmil wrote:

    Sung to: "Where have all the flowers gone"

    Where have all the workers gone? Long time passing.

    Where have all the workers gone? Long time ago.

    Gone over seas everyone.

    When will they ever learn, when will they ever learn!

  • Report this Comment On October 05, 2013, at 6:50 PM, KUBLOTNIK wrote:

    when the birth rate in japan declined to near zero in the 80s, it engendered a depression that the japanese are just now coming out of. you cannot expand and grow an economy on just tech.and robots alone. you must have PEOPLE. i heard a demographer on a radio show say a few years ago that we are about 20 mil. people short when it comes to needed labor. that is because we have ,at that time, aborted 40 mil babies that should have entered the work force. we have made this up,as they have done in europe, with importing labor from other countries.namely mexico. and we will continue to have a shortage as the boomers retire.

  • Report this Comment On October 05, 2013, at 7:11 PM, EllieGant wrote:

    This article is very skewed. None of these reasons for lower employment apply. The real reason is corporations have moved overseas. Take a look at "world's tallest buildings" on WIkipedia, most are in China, now, and the tenants are our corporations! Many jobs in the U.S. are with the government (teachers, bureaucrats,even medical, since gov't picks up the tab,often),but corporations don't pay their share of taxes, so we end up seriously in the red. Motley Fool is seriously not leveling with us here.

  • Report this Comment On October 05, 2013, at 7:17 PM, anonymous60 wrote:

    Ya think!? As some of us used to say in the wayback: No Sh-- Sherlock! The baby boomers that can't get jobs because of jobs; part-timers; retired; living w/children & grands; maybe not having politicians and wealthy pay their FAIR SHARE because they make thousands of $$$ in donations THAT ARE WRITTEN OFF SO NO TAXES PAID!!!!!!! Yeah, those of us that do have some type of job and the middle class (which is getting to be the 'lower class' with no middle anywhere to be found) is paying the way for the majority. And sitting there and doing nothing about it but bit----g!.

  • Report this Comment On October 05, 2013, at 7:25 PM, destined4money wrote:

    The declining labor force participation rate is a symptom, not a cause, of the Great Recession.

    The labor rate is falling because of the punitive anti-business policies coming from Washington. In particular, the incredibly destructive healthcare "overhaul" under the ACA, and the anti-energy environmental policies.

    The inflationary Keynesian policies of the Fed aren't helping, either, by preventing the adjustment that has been sorely needed since the 2008 crisis began. These same policies brought us the Great Depression in the 1930's, it should surprise nobody that they produce exactly the same result nearly a century later.

    End these policies and watch the economy turn around after a short downturn as the correction clears out the deadwood.

  • Report this Comment On October 05, 2013, at 8:33 PM, PirocaDuro wrote:

    It's a No-Brainer as far as "Where have all the workers gone". They are living off their Entitlements. Heck...who wouldn't?

  • Report this Comment On October 05, 2013, at 9:39 PM, Barmil wrote:

    See the following quote:

    September 29, 1992 -- At a town hall meeting in Los Angeles, Trilateralist and former CFR president Winston Lord delivers a speech titled Changing Our Ways: America and the New World, in which he remarks: "To a certain extent, we are going to have to yield some of our sovereignty, which will be controversial at home...[Under] the North American Free Trade Agreement (NAFTA)...some Americans are going to be hurt as low-wage jobs are taken away." Lord became an Assistant Secretary of State in the Clinton administration.

    This your end result of this grand fiasco thanks to the Clinton admin.

  • Report this Comment On October 05, 2013, at 9:51 PM, Barmil wrote:

    I'm a worker and what entitlements? The only entitlement that I qualify for is tax payer.

  • Report this Comment On October 05, 2013, at 10:58 PM, delm31 wrote:

    Maybe we could turn the economy over to illegal immigrants. That would make up for a labor shortage.

  • Report this Comment On October 05, 2013, at 11:23 PM, DaSky wrote:

    The entire shrinking economy, along with the shrinking workforce, is a result of the O Regime's neo-Marxist policies, period!

  • Report this Comment On October 05, 2013, at 11:35 PM, liberalmoron wrote:

    There are too many government workers!! You need how many private sector workers paying taxes to support on government worker? Ten? I have never seen this number in print. Reduce government and you solve the problem. That is easy to do. Eliminate all Democrat politicians and you win!

  • Report this Comment On October 06, 2013, at 1:52 AM, activecitizen wrote:

    The workforce is dwindling because

    1) recession hit many out of work and some have yet to find a new job so there is a long period of unemployment on the resume. Not because of any thing but "no work" - now work is available

    2) employers want no resumes from unemployed

    3) age discrimination - yet the population of the USA is skewed in older age direction.

    4) outsourcing with no replacement jobs for the displaced workers.

    5) foolish employers who believe older people should not be hired.

    Employers favor young inexperience fast talking convincing employees - (productivity????)

    6) young recruiters who have no idea whats on resumes so they discard because life is easier.

    7) those who are tired of looking have given up

  • Report this Comment On October 06, 2013, at 3:12 AM, whaleback1 wrote:

    "23 million unemployed persons with a disability, over 80% said their disability was the greatest barrier to employment. Education, the next biggest barrier, was cited by only 14% of respondents"

    Could it be because a lot Americans are unhealthy and inadequate educated? I saw many young people with no ambition in getting good job skills. They drop out of high school, or study worthless fields in college for years (hey, student loans are plenty, and there is a good chance they can be forgiven anyway).

    And many Americans don't take care for their health. They eat fast food for lunch, and prepared food for dinner. They can't eat a sandwich without potato chips, pickles and sugary soft drinks. Do they know these are too many calories and too much sodium and sugar?

    I cringed to watch the TV show Mad Men when Betty served Don a dinner of chicken salad and Ritz crackers. This is unbelievable. Don is a rich executive. Yet his wife has absolutely no nutritional knowledge. I have observed people. This scene is quite realistic.Many people go through life without thinking. All they care about is money and pleasure.

    America is marching down the wrong path. We spend all our time discussion right to health care, good housing, equal pay, etc. All the Democrats want is wealth redistribution and a Marxism society 'To each according to his need. From each according to his needs' (charging health insurance premium according to the income level is the first step). But they did not notice our collective wealth has been eroded by our poor health, lazy attitude, inadequate education resulted from a irresponsibly life style and a socialism ideology.

    We need to focus on creating wealth. To do so everybody needs to live a healthy and disciplined life style and set a productive goal. Without self-improvement and productivity, one cannot be truly happy.

  • Report this Comment On October 06, 2013, at 6:59 AM, cvxxx wrote:

    IT is the facts that cost of living went up during the recession and are going to stay up. Profit making is king. Too many have been forced out of gainful employment and then are demonized by the Radical Right. Who wants all women to be barefoot and pregnant.

    The left wants to import immigrants to keep wages down. So the American citizen is being squeezed from both sides.

  • Report this Comment On October 06, 2013, at 8:53 AM, Erford1856 wrote:

    With respect to this article, what it doesn't say is the elephant in the room, Obamacare, and the economic drag it is to our country. It doesn't take a rocket scientist to know why, and its something the Democrats should've known before they forced this monstrosity on the public. The main employer in the country is small companies, who've historically produced about 75% of our jobs. Now, because of Obamacare, companies with 50 or more employees, who work more than 30 hours per week must provide them with premium insurance. Large numbers of companies in this size bracket either can't afford to offer this insurance or it makes no economic sense for them to do so. Thus, they're laying people off to get below 50 employees, not growing above 50 employees (when they would've before Obamacare), or cutting the work hours for thousands (if not millions) of employees to below 30 hours per week, condemning them to working two jobs to make ends meet (if they can find those jobs), having no benefits at either job, and having no insurance, and, thus, defeating the whole purpose of Obamacare in the first place. Now, can these people get insurance on the disastrous "insurance exchanges?" Yes; however, though the premiums are relatively low, the deductibles are high and, if these people make too much to qualify for subsidies, they won't get insured or they may choose not to, deciding to pay the increased tax penalty, as millions are deciding to do.

    Further, even if they decide to pay the taxes or get subsidies, the cost of Obamacare to the country will (and has) skyrocket to beyond its initial estimate. The latest Congressional Budget Office report states that Obamacare is now projected to cost as much as 2 to 3 times more than originally estimated, an added cost of at least $1 trillion over a time frame I can't recall, which, of course, adds to an unfunded liability tab of about $124 trillion, which exceeds our GDP of $94 trillion, putting us in the same conditions under which Greece went bankrupt.

    What's more, last month's job report shows these effects. Of the 175,000 jobs created, a full 50% were part time. Further, neither figure is enough to keep up with the number of people, who require jobs, which only adds to the unnecessary economic misery.

  • Report this Comment On October 06, 2013, at 9:33 AM, Erford1856 wrote:

    To add to what I wrote earlier, far larger numbers of people than was originally estimated are being dumped on to the exchanges or are choosing to pay the tax penalty, instead of buying insurance. In either event, it's costing the government far more than it had originally estimated to run Obamacare. Also, it's running counter to almost all of Obama's promises concerning Obamacare. For unlike what Obama promised,

    1. Millions will not be able to keep their doctor or their insurance, even if they like both;

    2. The cost of insurance premiums are going up (by as much as 27% to 142% in some states; and

    3. As I've written about before, government expenditures for health care will rise dramatically, worsening our national debt.

    For example, just recently, two major companies announced that either all or some of their employees will lose their company insurance and be dumped on to the disastrous "insurance exchanges." Those companies include IBM, which discontinued insurance for all of its employees, and UPS, which discontinued insurance for 15,000 employee dependents. Further, this is only a small sampling of people, who've lost their company insurance because of that steaming pile of horse manure known as Obamacare.

    I realize that many of you either don't like the Republicans or are suspicious of them. But keep in mind, there the only party that's big enough to stop the Democrats and "Obamacare." Moreover, you can always work to change them from the inside, if you so choose. Also, keep in mind that because the media is strongly left-wing, and, thus, very biased, much of what you're being told about Republicans from many media outlets (like "Motley Fool") is flat out false (1).

    Folks, it's your only hope, if you don't want to end up living in a part-time nation. Just look at what the Democrats did to the City of Detroit, which is bankrupt, experiencing severe urban blight, and suffering under a shrunken tax base, because there's no jobs and because hundreds of thousands have left to find better economies in which to live. In varying degrees, its what's in store for the whole country, unless we wake up and vote as many Democrats out of office as we can in 2014 and in 2016. It's the only way to save the country, and it's the only way to save the Democratic Party because it will tell them to either kick out, or wrest control from, the hard-core, left-wing extremists (like Obama and Nancy Pelosi), who've high jacked it.

    (1) - Google to read the paper, "A Measure of Media Bias," by Professors Timothy Groseclose of UCLA and Jeffrey Milyo of University of Missouri.

  • Report this Comment On October 21, 2013, at 8:39 PM, davefe wrote:

    Sadly the damage caused by Republicans and the great recession/depression eliminated middle class jobs...folks they are not coming back. With record corporate profits and many jobs exported over seas, we now see hard working Americans have little to look forward to with low wage jobs. Republicans failed to win the election and have failed to stop Obamacare. The PEOPLE have spoken and now Republican Tea Party is held in disdain by most Americans. With no ideas on how to create jobs or offer affordable insurance they have nothing better to do than plot on ways to shut down the government and cause more economic harm. Folks it is time to remove the anarchists. They are destroying the country. Nineteen million people are very interested in Affordable Insurance and millions more will follow. These crazy anarchists are an embarrassment and more importantly dangerous. The Republican establishment has now recognized that these "wacko birds" are hurting the country. War heroes like John McCain hate the anarchists like Ted Cruz, who represent a very small population of people. Change hope...yes it is coming. God will save the Republic. Vote in 2014, remove the dangerous Tea Party. They have been beaten back but much work remains. Folks let's work together to make our country great again. God bless.

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