What is Happening to Minnesota’s Aging Workforce? - Part 1
Minnesota’s unemployment rate continues to hover around 3%, which is near record lows. The only point lower was in October 2022 where there was a 2.2% unemployment rate, and before that we have to go all the way back to October 1999 where it was 2.1%. Given the historic low levels of unemployment and corresponding labor shortages, we wanted to find out what we can expect about the number of workers set to retire in the next few years. We know that baby have provided a big portion of the total labor market in recent decades, but like every generation, they will retire sometime.
Baby boomers, born between 1946-1964, are currently between 59-77 years old in 2023. The average age of retirement in Minnesota is 65 years old, which should mean that on average we are about in the middle of total retirement for the baby boomer generation (average says two-thirds should be retired and one-third should still be working). If Minnesota is already experiencing low unemployment and labor shortages, how will the retirements of Baby Boomers impact the labor market in coming years. First let’s take a look at a current snapshot of workers by age cohort.
Figure 1.
We should expect that the proportion of workers as they approach age 65 and beyond to shrink over time due to retirements. A healthy labor force also dictates that younger cohorts should remain level in order that the number of workers who retire can be replaced by those younger generations.
What we see here however, is that the proportion of workers aged 45-54 is actually shrinking, and the amount of workers in the 55-64 and 65+ cohorts is growing.
There could be several factors which explain this counterintuitive trend:
Baby Boomers are simply larger as a generation, so even with retirements they still maintain a larger share of the total workforce.
Baby Boomers are waiting longer to retire, and therefore staying in the workforce in greater numbers.
Due to waiting longer to retire, their labor force participation rates are higher.
Figure 2.
This chart shows the labor force participation rate for the same age groups in figure 1. As a refresher, labor force participation is the percentage of the total population of that age group who is employed or looking for work. It’s important to note that in figure 1, we show the each age group as a percent of the total workforce in Minnesota. In figure 2, alternatively, we show the percentage of all people in that age group who are employed or looking for work.
We see that the labor force participation rate for each age group is pretty consistent with the trends shown in figure 1. For ages 45-54 we see that participation rates drop and then level off between 2002-2022. For each older age group we see participation rates actually increase fairly substantially. This supports the idea that the total workforce is composed of a larger share of older workers due to their prolonged work-life and sustained participation rates.
From a labor supply perspective, it’s clearly important to be able to forecast what the available labor supply is going to be. MN DEED has provided projections for what the labor force participation rate will be in the next decade using the same age groups as above.
Figure 3
This chart shows the same story, except even more pronounced. The percentages next to each bar indicate the change in participation rate each year between 2022 to 2032. This means for example, labor force participation for the age group 75 and over will grow 1.9% each year from 2022 to 2032. Conversely, the participation rate for those aged 20-24 will shrink by 0.5% each year until 2032.
These trends have implications beyond the labor force simply getting older. In the next post, we will dive into how this imbalance in participation growth will affect the overall labor market, unemployment, and job vacancies. We will also take a look at which industries will be impacted the most by these trends in the Minnesota labor market.