3 days ago
The Workforce Crisis Threatening America's Economy
The U.S. lost its last remaining perfect credit rating earlier this month as Moody's elected to downgrade U.S. debt from AAA to AA1. Historically, these downgrades, first enacted by S&P in 2011 and then by Fitch in 2023, have had little material impact on the U.S. economy because of its size, and the sheer global demand for treasuries. However, they do serve as financial markets' town crier—highlighting issues that could affect the U.S. economy and further investment into it.
Describing the reasons for their downgrades, S&P and Fitch cited "political brinkmanship" in the U.S. taking the form of "repeated debt-limit political standoffs and last-minute resolutions." But Moody's rationale was different. Instead of harping on politics, it pointed to two nonpartisan realities: rising entitlement spending and smaller government revenues to finance them.
For many labor market experts, these findings are old news.
The U.S. faces a growing shortfall of entrants to the labor force who can replace those retiring from it. For the past three years, the U.S. Bureau of Labor Statistics has downgraded its forecasts of total employment growth, citing an aging U.S. population and declining labor force participation. In fact, one study by Lightcast projected that U.S. population growth will outpace labor force growth by eight to one in 2032. This means there will be increased demand for government programs such as Social Security and Medicare, but fewer workers to fund them.
Such trends have wreaked havoc on other countries. For example, France had 2.1 workers paying into its pension system for every retiree in 2000. In 2023, just 1.2 workers were supporting every retiree. When the government attempted to alter an unsustainable status quo by raising the age of retirement, it triggered severe protests throughout the country.
France is not facing these dire straits alone. Between 2000 and 2022, the worker-to-retiree ratio for Europe has decreased from 4.9 to 2.9. In China and Japan, an aging population coupled with a shrinking labor force has drastically reduced economic activity over the past decade, forcing both nations to enact significant cutbacks in government spending.
People affiliated with the 50501 movement march through downtown Detroit, Michigan on Saturday, April 19, 2025, to protest the Trump administration on the 250th anniversary of the start of the American Revolution.
People affiliated with the 50501 movement march through downtown Detroit, Michigan on Saturday, April 19, 2025, to protest the Trump administration on the 250th anniversary of the start of the American Revolution.
DOMINIC GWINN/Middle East Image/AFP/Getty Images
Unlike its peers, the U.S. has yet to meaningfully address these issues due to its political paralysis. Reforming the entitlements system through Social Security and Medicare reform, increasing labor force participation by changing immigration policy, and even incentivizing companies to hire more workers by updating the tax code are considered near-insurmountable tasks for a Congress defined by partisan gridlock. Social Security was last reformed in 1983; immigration policy was last changed in 1986; and the tax code was last updated in 2017.
With the federal government unlikely to address the shortfall of workers needed to sustain a growing demand for entitlements, it is no wonder the U.S.' creditworthiness is declining.
But there are plenty of opportunities for improvement. As of April 2025, 7.2 million Americans are out of the labor force but would like to be employed, while 10.7 percent of young adults aged 16 to 24 are not in employment, education, or training programs. Many of them do not have the skillsets or training that employers are looking for, while others have a narrow view of careers that match their background and interests.
To reduce the U.S. labor shortage, we can start by reaching out to this disaffected cohort of workers through workforce development programs, especially ones that include apprenticeships, that inform young adults of the careers they can pursue and skills they must develop to earn a respectable living.
Workforce development does not hold the same political cachet as addressing entitlements, immigration policy, or the tax code. Nor is it a one-stop solution for fixing the U.S.' large fiscal imbalance. But it is a meaningful, attainable step towards accommodating increased entitlement demand by maximizing the number of taxpaying workers to fund it. And by ensuring every worker has the ability to actively participate in this economy, the U.S. can prove that it is capable of following through on the tougher steps ahead to correct its fiscal deficit.
Noah Yosif is Chief Economist at the American Staffing Association.
The views expressed in this article are the writer's own.
