In a healthy labor market, enough jobs are being created to soak up all the new people looking for work. But what if those numbers are essentially zilch?
That’s the conundrum facing Federal Reserve officials, as they eye employment reports that have registered in the red for five of the last 12 months. The economy has added 156,000 jobs over the past year, the slowest pace since the Covid-19 pandemic and, before that, the aftermath of the financial crisis. The rate of hiring has fallen to lows from April 2020 and early 2010.
And yet, in contrast to those economic cataclysms, the jobless are not lining up at unemployment offices. Because of President Trump’s hard turn toward deportations and clampdown on legal immigration channels, there just aren’t that many new job seekers.
“You’ve got a sort of a zero employment growth equilibrium,” said Jerome H. Powell, the Fed’s chair, at the central bank’s meeting last month. “Now that’s balance, OK, but I would say it does have a feel of downside risk, and it’s not kind of a really comfortable balance.”
The unease reflects the unfamiliar nature of a no-growth U.S. job market. The labor force has slowed down before, including during the Great Recession, when many immigrants who had come for construction jobs during the housing boom left after those opportunities evaporated. Their departures served as something of a safety valve, preventing unemployment from rising even higher.
But labor force growth has never come to such a standstill outside that kind of downturn. And it is accelerating the reality that now faces many developed countries: As birthrates dip, the working-age population flatlines and may shrink, unless foreigners come in to refresh it. The United States was supposed to reach that point a few decades hence. Now, it’s already here.
“There is so much angst about the state of the economy right now, and that’s because it’s so different from what we’ve seen in recent decades,” said Luke Pardue, policy director at the Aspen Institute’s Economic Strategy Group. “What we’re seeing right now is a strong hint of what we will see in the future given the current and projected demographic trends.”
The new equilibrium creates some challenges. Surmounting them — if the federal government remains committed to keeping foreigners out — would require some very focused effort.
Harder Questions
As long as a country has basic preconditions for prosperity, like a functional government and universal education system, moderate population growth is a tailwind for living standards. More people mean more customers for goods and services, more available workers to execute on good ideas and more opportunities to move around and grow.
Think about the economy as a company. If it’s growing, employees have an easier time moving to different roles as they learn and try new things, since the firm is able to backfill what they were doing before. When the business stays the same size, it’s harder to maintain that trajectory, and workers may not fulfill their potential.
It’s possible to maintain a certain amount of churn and dynamism without adding workers; it’s just more difficult. One person moving out of a position to take another job leaves a vacancy that may be tough to fill.
“For these big developed economies that have relatively stagnant populations, it makes all these trade-offs way more tangible,” said Dietrich Vollrath, a professor of economics at the University of Houston. “You very much have to make choices that some places are going to shrink and do worse, and some places are going to do better. The growing, expanding population allows you to skip past the hard questions.”
At the same time, the composition of the labor force is changing, adding more people in their 50s and 60s while fewer 20-somethings are getting started. Although age brings some benefits, such as knowledge and experience, older people tend to be less likely to take the kinds of risks that create new ideas and businesses. They also are less well equipped for physical jobs, like nursing and construction.
Also, as workers retire, that labor force has to support a larger nonworking population. That creates two problems.
One, Social Security is designed around adding taxpayers faster than they age out of the system. The equation has also long depended on immigrants, who typically contribute payroll taxes and rarely get benefits in return. Slowing immigration has already moved up the date by which Social Security will become insolvent, which would force benefit cuts, tax increases or both.
And two, older people consume far more health care, which is inherently labor intensive. The sector is already essentially the only source of employment growth, and probably could be growing faster if there were enough qualified workers. With a constrained labor force, satisfying health care demand means that some other part of the economy will need to make do with less.
Finally, for both businesses and policymakers, there is something psychologically unnerving to the number zero. When the economy isn’t creating more jobs, employers may worry that people will have less disposable income, and start to shrink their own payrolls in anticipation.
“Does Walmart say, ‘We have less demand in our stores — let’s extrapolate that out and assume we’re going to have less demand in 2026 than in 2025, and we’re going to build less, hire less, expand less’?” said Wendy Edelberg, a former chief economist at the Congressional Budget Office. “All of that can create its own momentum for a downturn.”
Wealth Without Growth?
A flatlining population is by no means an economic death sentence. Plenty of countries are already dealing with it.
The prototypical example is Japan, where even though the population has been sinking since 2008, the labor force has been rebounding after a concerted effort to help women stay employed with more robust child care and parental leave. Older people are working longer as well. When humans aren’t available, robots fill many menial positions, like making coffee and stocking shelves.
Another policy lever that can help places with low or negative population growth is helping people retrain and find new positions quickly if they lose a job. The United States spends far less as a share of its economic output on these “active labor market policies” than other wealthy nations, and might benefit from trying a bit harder to keep people in productive employment. Continuous education also helps make workers as productive as they can be, compensating for losses in manpower.
Perhaps the best way to maintain a healthy economy, even as work force growth slows, is to make sure prosperity is widely shared, with high minimum wages and adequate health care. If people on the low end of the income spectrum are able to go to the movies and remodel their homes, money keeps circulating and creating the demand for new goods and services. Other countries with stable or shrinking populations, including Japan as well as Scandinavian nations, have much lower rates of inequality than in the United States.
“Distribution can be an element that drives growth, because it spreads out and creates a larger market,” Mr. Vollrath of the University of Houston said. People starting businesses want to know if there are enough customers with the wherewithal to buy what they’re selling. “We all benefit from that,” he said. “A more equitable distribution can create some scale for us that didn’t exist before.”
But the easiest policy fix is one that America is currently rejecting: Allow more immigration.
It’s not just the size and the age structure of the work force that matter. New arrivals have historically been willing to take jobs that native-born workers haven’t wanted because — with the benefits of language and cultural fluency — they have better options. In that way, immigrants are like complementary ingredients in a recipe: If you don’t have enough sugar, you can’t make as many pies as you’d like, so you use less flour.
Natural experiments have buttressed this conclusion. In 2021 and 2022, U.S. companies that missed out on getting visas for seasonal workers saw reduced revenues and employed fewer native-born workers. And in South Korea, when a migrant worker program was suspended during the pandemic, companies went out of business and wages for Korean workers fell.
“It’s not like you take away the migrant worker and you can replace them with a native worker,” said Charles Kenny, a senior fellow at the Center for Global Development who has argued that wealthy countries should welcome more migrants. “Really what happens is the business closes down.”
This recipe math is accentuated by the potential dislocation of artificial intelligence, which appears very likely to destroy desk jobs for which there is no shortage of native-born workers. The occupations that have depended the most on immigrants, like home health care and landscaping, will scarcely be affected.
That’s why some countries without a long tradition of integrating people from many other places have stepped up their efforts to recruit immigrants, if not as full citizens, at least to supplement their labor forces. That includes Japan as well as Italy, where even as the conservative premier, Giorgia Meloni, battles unauthorized migrants on land and on sea, she has quietly opened the door to 500,000 foreigners to work on farms, as caretakers for older people and in other essential settings.
“You have to balance the social and political implications against the economic need,” said Lant Pritchett, a professor at the London School of Economics who has studied ways to make migration more palatable in destination countries. “Even a right-wing government who came to power on the premise that it was anti-immigrant realized that you can’t be anti-worker.”
Lydia DePillis reports on the American economy for The Times. She has been a journalist since 2009, and can be reached at [email protected].
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