Labor shortage likely to persist

SPOKANE VALLEY — If you’re having trouble finding people to fill job vacancies, Sam Wolkenhauer has some bad news for you.

It’s not going to get any better.

“The working-age population will shrink in the 2020s, and there’s nothing we can do about it,” said Wolkenhauer, an economist with the Idaho Department of Labor. “It’s an unavoidable demographic crossover, it’s extremely painful, and it’s not just happening here. It’s happening globally.”

Speaking at the Inland Northwest Partners Economic Forecast Fall Meeting on Oct. 13 at the CenterPlace Event Center in Spokane Valley, Wolkenhauer said the world’s population is set to experience a serious decline in the next 75 years given that most people are having fewer children, which means fewer younger workers and increasing numbers of older people who will eventually age out of the workforce and will not be replaced.

It will make finding new workers to fill existing jobs, or workers to do new kinds of work, very difficult. It will also stress the global economy, Wolkenhauer said, limiting growth while driving up the cost of goods because aging populations increase production costs.

“The only real population growth is in Africa and parts of the Middle East,” Wolkenhauer said. “We will see population declines in a lot of the developed world.”

According to data from the Washington State Employment Security Department, the official unemployment rate in Grant County hit 5.2% in August while the county’s civilian labor force shrank by 1.3% to its lowest level since late 2019, just prior to the outbreak of COVID-19. The official unemployment rate in Adams County in August was 3.6%, according to ESD data, with the local labor force shrinking during June and July to rise 1.2% in August.

Whatever the current situation, Wolkenahuer said the long-term prognosis is bleak. The country expected to be hit the hardest is China, which could see its population drop to 500 million from the current 1.3 billion by the end of the century, the result of 30 years of the country’s one-child policy followed by rapid industrialization and urbanization that prevented couples from having children and made raising them costlier, Wolkenhauer said.

“We tend to think of China as a country with unlimited human resources, but the labor force hit its peak five years ago,” he said. “Labor costs are up, manufacturers are pulling out of China, the era of China as a driver of cheap manufacturing is over.”

The rest of Asia is only somewhat better, Wolkenahuer said, noting the age of the average Japanese worker is 50 and Japanese automakers have shifted the bulk of their production to the United States because cars can no longer be made in Japan at scale. Europe also faces a similar problem, with lots of workers in their 50s and 60s and a lot fewer workers under 30.

“The average German is 55. It’s a country of 50-year-old engineers who make things and then will eventually retire,” he said. “That’s the real reason there’s an exodus of (European) manufacturing to the United States.”

Wolkenhauer said the integration of Mexico into the North American economy through the North American Free Trade Agreement (NAFTA) and its successor the United States-Mexico-Canada Agreement (USMCA) rapidly industrialized Mexico and gave domestic work opportunities for Mexican citizens, prompting the same kind of decline in births much of the rest of the world has seen.

“Most immigration to the U.S. comes from Central America,” he said, noting that Mexican migration to the U.S. dwindled to nearly nothing many years ago.

China, Germany and South Korea are all following the lead of Japan in automating as much of its manufacturing processes as possible in order to keep production and growth going, but Wolkenhauer said the Japanese experience is showing it doesn’t work as well as promised.

“It’s not a universal solution,” he said.

While things are difficult in the United States — more people are expected to turn 65 in the U.S. than turn 18 for the first time in 2022 — no other advanced economy has a large cohort of millennials like the United States, Wolkenhauer said. That created a decade-long abundance of younger workers in the decade from 2010 to around 2022 that allowed American businesses to defer difficult choices about labor.

However, despite this, the United States possesses some significant advantages most other advanced industrial economies do not, Wolkenhauer explained. The U.S. has a great deal of domestic energy production, is self-sufficient in food production, is not staring at a potential demographic nightmare and is attractive to migrants.

“We’re the only country that can tick all those boxes,” he said.

Because of that, Wolkenhauer said he expects to see a renaissance in U.S. manufacturing as well as more political and social power shift to workers who use their scarcity as a way to extract higher wages.

“It’s inflationary, but it’s not all bad,” he said.

Charles H. Featherstone can be reached at cfeatherstone@columbiabasinherald.com.