The inflationary pressures now roiling the economy and markets will probably fade once the economy has fully reopened and the pandemic is in remission.
Yet beneath the surface some of the forces that have long kept inflation in check are starting to turn. Most important: demographics.
The world’s two largest economies have just reported that population growth in the past decade was their slowest since World War II, as people aged and birthrates plummeted.
Lower fertility initially boosts the labor supply by enabling more women to enter the workforce. But fertility has been falling for so long in the U.S. and China that those demographic dividends were spent long ago, and now they face the consequences: a diminished supply of workers.
The U.S. population grew 7% between 2010 and 2020, according to decennial census results released last month. The age breakdown isn’t yet available, but a smaller sample by the Census Bureau and the Bureau of Labor Statistics shows that the working-age population—those ages 16 to 64—grew just 3.3%. Because the share of those people working or looking for work has shrunk, the working-age labor force grew only 2%, and actually shrank last year. Some of those missing workers will return when the virus recedes, schools reopen and unemployment insurance becomes less generous. But many won’t: Baby boomer retirements have soared.
