Mystery: where are all the workers going?

The US Bureau of Labor Statistics has just released its latest employment data, and job growth remains anemic.  However, there is a mystery that has economists scratching their heads: the size of the workforce -- employed and unemployed -- keeps shrinking as a proportion of the population.

In its latest monthly update, the BLS calculates the size of the total workforce at 154.4 million, or 63.6% of the total population. People working or seeking work are counted. However, as pointed out by Brad Plumer in The Washington Post, this is a lower rate than a decade ago, and has been steadily declining. "In January 2000, 67.3% of Americans had a job or were actively seeking work. By 2007, just before the recession, that had fallen to 66%. In January 2009, it was 65.7%. Since then, it has fallen to 63.6%, a level not seen since [1981]."

At first blush, the assumption is that many people gave up searching for work, and and thus are no longer counted as part of the active workforce. Thus, unemployment runs deeper than government statistics suggest.

However, a number of economists suggest that a longer-term trend is also at work: demographics. The baby boomers -- that huge bulge of people born between 1946 and 1964 -- are retiring. This is the generation that inundated the university campuses in the late 1960s and early 1970s, and then workplaces in the late 1970s and 1980s.

A recent report from the Federal Reserve Bank of Chicago posits that about half of the decline of the workforce is due to the baby-boom demographic shift, and about half is due to discouraged workers dropping out of the workforce. The report's authors project that by 2020, the labor force participation rate will slip further, to 62.4%. "Roughly two-thirds of the decline is due to the aging of the labor force -- in particular, baby boomer retirements," the report projects.

A MetLife study released last month suggests that baby boomers are retiring at a faster rate than previously expected. The study reports that 59% of the first Boomers to turn 65 are at least partially retired — 45% are completely retired and 14% are retired, but working part-time.

This has implications for companies, many of which are already battling shortages of skilled employees -- ironically, at a time of high unemployment and underemployment. A report from Deloitte and The Manufacturing Institute, issued at the end of 2011, finds 74% of companies report skills shortages. “Shortages in skilled production jobs – machinists, operators, craft workers, distributors, technicians, and more – are taking their toll on manufacturers’ ability to expand operations, drive innovation, and improve productivity. Shortages or skills deficiencies in skilled production roles are having a significant impact on their ability to expand operations or improve productivity. Unfortunately, these jobs require the most training, and are traditionally among the hardest manufacturing jobs to find existing talent to fill.”

Today's hyper-competitive global economy demands a range of skills and employee engagement. Technology goes a long way, but innovation and new approaches to business don't spring from automated operations. Deloitte and the Manufacturing Institute pointed out that as many as 600,000 jobs are going unfilled among manufacturers. And there appears to be fewer workers out there to fill the gaps.  In fact, the BLS numbers show unemployment within the manufacturing sector fell from 7.6% in March to 6.9% in April, below the US national average.

Demographics aren't cutting in companies' favor, so the onus is on employers to look forward and provide the training and development needed. Fostering open and entrepreneurial cultures that allow for failure and reward innovation will also draw out productivity to new levels. Operating a rigid, hierarchical, hidebound workplace will only keep talent away and exacerbate skills shortages.

This post was originally published on Smartplanet.com