Old Folks and Immigrants Fill Workforce Gap

The Sunday Times (London)

September 12,1999

Last week we considered one of Fed Chairman Alan Greenspan's worries: that soaring share prices are stimulating the demand side of the economy by making consumers richer, and making them feel even richer than they might prove to be when the time to sell their shares arrives. Now let's turn to his other worry, this one on the supply side.

In effect, Greenspan is asking, "Where will the workers come from to make continued growth possible without wage inflation?" Population growth alone can't begin to provide enough hands to meet the demand for goods and services that increasingly affluent Americans are making on providers of houses, appliances, cars and just about everything else.

Nor can American consumers continue to depend on a flow of workers moving from their couches into the work place in response to the better pay and more flexible hours being offered by hard-pressed employers. It seems that just about everyone who could be lured into the work force already has been, and that what is called "the labour force participation rate"--the portion of all adults who are in the work force--is as high as it can go.

Then there are imported goods that might fill the closets and garages of American consumers. And have been doing just that. But that source of cheap goods might be coming to an end. Recovering European and Asian economies will increasingly bid for the world's output, driving prices up. Besides, America's trade deficit is crowding a record 4% of GDP, which might make foreigners less willing to send us their goods in return for an ever-increasing supply of the pictures of dead American presidents that grace our currency.

Finally, it is possible that continued increases in productivity per worker will make it unnecessary to expand the number of workers in order to keep up with growing demand. But recent data suggest that such productivity gains have run their course, partly because many firms have slimmed down as much as it is possible to do, and partly because the marginal workers being lured into the work force are not the sharpest knives in the drawer.

So back to Greenspan's question: where will the workers come from? One source is immigration. About 1.3 million immigrants arrive in America every year, some 300,000 of them illegally. In absolute numbers, this is a record flood, although relative to the size of the population it is nowhere near past immigration peaks. More important is the role that these workers play in the work force.

Stephan-Götz Richter, president of the TransAtlantic Futures Research Institute, and Daniel Bachman, its chief economist, estimate that immigrants have filled 5.1 million of the 12.7 million new jobs created in the United States between 1990 and 1998. That's 38% of the total. Some of these immigrants, many of them illegal, find low-paying work. Some can be seen tending the gardens and cleaning the pools of upper-income Americans; others pick the fruit and vegetables that Americans always assume will be available in abundance in their supermarkets; still others tend the tens of thousands of hotel rooms in the nation's cities and resorts.

But many fill jobs in the higher end of the labour market. Messrs. Richter and Bachman estimate that nearly one-third of start-up companies in Silicon Valley are headed by an Indian or Chinese immigrant. And 75.6% of the immigrants who arrived here before 1970 now own their own homes. This compares with a 69.8% home-ownership rate among native-born Americans.

So immigration might just provide one of the answers to Greenspan's query, especially if Congress increases the number of work permits it allows to immigrant workers. Another source is what we once called old folks. More and more Americans are remaining in the work force after "retiring" from their jobs.

Politicians worry that an aging population will place intolerable burdens on the social security system some time during the next century. By 2020 so many baby boomers will retire that some experts fear that what Barron's financial magazine calls "The Great Demographic Time Bomb" will explode. Not only will the social security system be unable to meet its obligations, but the retirees will convert their shares into cash in such large numbers that the stock market will swoon under the selling pressure. But America may well be spared the noisy clang of zimmer frames. For one thing, Americans are healthier than ever before. We (or at least some of us) eat less, smoke less, and live longer. And live better, witness the number of newly inserted hips and knees cavorting on the nation's tennis courts and golf courses.

For another, the very concept of "a mandatory retirement age" is no longer in fashion. Indeed, in many occupations it is downright illegal to cashier a worker simply because he has reached a certain age.

Then, too, some Americans will have to work to keep food on the table and a roof over their heads, and even more will stay in the work force so for the sheer love of working. A survey for the American Association of Retired Persons (the politically potent AARP, in the presence of whose lobbyists grown politicians quake) by Roper Storch of some 2,000 baby boomers turned up only 16% who say they won't work at all after retirement. Eighty percent plan to work, one third-of those because they fear they will have to, and two-thirds because they want to. (4% of the respondents weren't sure what they would do.)

So it may well be that Greenspan's fear that the workforce won't be able to grow sufficiently to sustain anything like present growth rates is unfounded. Newcomers to America and old-timers in the work force just might provide the added staff employers will need to continue increasing output without bidding up wages and labour costs. Suspicion around Washington, however, is that "just might" isn't certain enough to prevent another interest rate hike before year end.