According to a new report from the Council of Economic Advisers, the U.S. is facing a major labor supply shortfall, which could curtail economic growth in the coming years. The aging U.S. workforce, slowing population growth, and declining labor force participation by both women and men have created “significant headwinds” for the U.S. labor supply, which could depress economic growth and living standards for years.
The report suggests that increasing immigration and investing in childcare could help address this shortfall. Allowing more immigrants to enter the United States and legalizing the status of 11 million people already in the country without authorization to work would offset the aging demographics and boost innovation. Funding childcare, removing barriers to employment for previously incarcerated people, and expanding the Earned Income Tax Credit, while supporting regional development and encouraging higher rates of unionization would also draw more adults into the workforce and boost labor supply.
CEA Chair Cecilia Rouse warned that “failure to enact comprehensive immigration reform and steps that allowed workers to balance home and work responsibilities would harm the U.S. economy.” She emphasized that changes were imperative to ensure U.S. growth and that these are economic issues, not political issues. However, there is strong resistance in Congress to Biden’s efforts to enact immigration reform, guarantee paid leave for all workers, and boost childcare options, with Republican control of the House of Representatives further narrowing the odds for action.
Although the labor force participation has begun to recover after the COVID-19 pandemic, it remains lower than it was in the 2000s. COVID accelerated the trend, with more older workers retiring, while declining U.S. life expectancy was removing other workers. This means that the “vast majority” of the growth in working-age people will come from immigrants and their descendants, according to the report.