“Based on current demographic trends and labor force participation rates, the workplace is expected to face a shortage of 26.9 million employees by 2031.” That prediction comes from a study released in late August by the Employment Policy Institute, a business-supported think tank.
Projecting a labor shortage of 26.9 million is pretty specific–and pretty silly.
If the study demonstrates anything, it is the folly of making long-run predictions based on short-run trends. Making such predictions, however, is time-honored and common. But everyday economic behavior usually makes such predictions ridiculous by the time they are supposed to come true.
In the 1930s, when the U.S. population was about 130 million and birth rates were very low, the U.S. Census Bureau projected the U.S. population would top out at 150 million and probably never exceed that level. We passed that point a few years after World War II and are approaching twice that level.
At the University of Minnesota some 30 years ago, I and most other freshmen had to read an essay by Paul Ehrlich who predicted that the world would face an “eco-catastrophe” by the mid-1970s—with hundreds of millions dying of hunger as overpopulation and pesticide-induced environmental problems collided.
Many people are still desperately poor, but the mass starvation never occurred and much smaller proportions of the populations of developing countries are hungry than was true when Ehrlich made his predictions.
In the mid-1970s, many amateur analysts looked at published levels of oil reserves and consumption trends and confidently predicted the world would be out of oil by 2000. The reserves-to-consumption ratio is slightly more ample today than 25 years ago, and oil prices, adjusted for inflation, are lower.
I try to be cautious in making predictions, but I will make at least two with confidence. We are not going to be “short” 26.9 million employees in 2031, nor are we going to be out of oil.
Why not? The simple answer is that as any resource becomes scarce, markets adjust through the mechanism of prices, which sends signal to both producers and consumers to change their behavior. These changes are made marginally or incrementally so that simple-minded projections of shortages never materialize.
Demographic trends are such that the U.S. labor force is likely to grow at a slower rate than it has in the past four decades. As labor becomes scarcer, market forces will make it more expensive. In other words, wages will go up.
Higher wages will tell employers to find ways to make the labor they are buying more productive. That usually means better machinery or tools. High and rising wages induce innovation in labor-saving technology, whether it is mechanical or electronic.
Higher wages also tell people to work more. With improved health and higher wage rates, we are likely to see more people continue to work after age 62 or 65. Employers will alter work schedules and working conditions to attract part-time, semi-retired workers. This is already visible in discount stores and fast food outlets.
Higher labor costs will also induce more immigration, both legal and illegal.
If oil becomes scarce, oil companies have a financial incentive to look for more or to develop new technology to extract more oil from existing reserves at lower cost. Two relatively unheralded innovations, 3-d seismic sensing and directional drilling, both perfected in the last two decades, multiplied recoverable oil reserves many times.
Higher oil prices also tell consumers to use less. This may be through insulating homes; driving smaller, higher-mileage cars or simply reducing use. Few people noticed, but energy use per unit of output has dropped by half since the first oil embargo.
Saying that there will not be a 29.6 million worker labor shortage is not the same as saying that the work world will be exactly the same as now. It probably will not be. And saying that we will not run out of oil in 30 years is not the same as asserting that we will use oil for exactly the same things at exactly the same levels as now.
Technology and society both evolve in relation to market forces. But as the great British economist Alfred Marshall observed, natura non facit saltum, (nature does not take leaps). Economies and societies adjust gradually over time. But they do adjust, and simple-minded projections of current short-run trends usually turn out to be silly in retrospect.
© 2001 Edward Lotterman
Chanarambie Consulting, Inc.