The Workforce's Missing Millions

The loss of millions of US workers during the pandemic was the most significant shock to the labor market in recent memory. In a speech earlier this year, Federal Reserve chair Jerome Powell stated that nearly a half million people "who would have been working" died from COVID in the US, and many more workers retired during the pandemic.

The impact continues to ripple through the economy to this day. The experience also has left us with newfound knowledge and takeaways about the value of older workers.

A sharp rise in retirement rates

The pandemic caused a presumed gradual and fairly predictable retirement process to occur suddenly, unexpectedly, and on a mass scale. AARP research conducted in 2022 indicated that about two in five workers ages 50-plus who had recently retired, left a job, or considered leaving a job wouldn't have done so had it not been for the pandemic, and one in five retired earlier than planned. Analysis of government data has also shown that, as of April 2023, retirements during the pandemic exceeded the originally predicted number by more than 2.4 million "excess" retirements.

The US labor force participation challenge

The loss of millions of workers has compounded an ongoing challenge for the US economy: a longer-term trend in declining labor force participation rates. This is "one area in which the United States is uniquely challenged," according to a McKinsey report on rekindling US productivity. While "labor participation in the United States has declined by 4 percent since its peak in 1998," each of the advanced economies of the other G7 countries "has experienced rising labor participation rates since the 1990s, bolstering their total economic growth," the report states.

Over the long term, productivity growth tends to be driven by technological innovation, physical capital investment (i.e., upgrades to the infrastructure and machinery used to produce goods), and investment in human capital through training and education. While the US Bureau of Labor Statistics (BLS) forecasts accelerating labor productivity growth in the coming decade, it predicts labor force participation rate declines will remain a challenge for the US economy. Despite the recent loss of many older workers, the BLS forecasts that the 55-to-64 and 65-plus age groups are the only ones that will see a rise in their labor force participation rates in the next decade.

Missing mentors and productivity losses

Declining labor force participation trends highlight the importance of older workers to the US labor market. But beyond the open jobs they left behind, a drop in the number of older workers across many US industries might be influencing today's workplaces in other ways. For example, in the aftermath of historically high numbers of workers quitting their jobs, many employees are now early in their tenure at a new job. Some research has indicated that workers with less job tenure have lower productivity levels than their more tenured counterparts.

Employees with longer tenures, meanwhile, often possess higher levels of company- and industry-specific knowledge, skills, and relationships. Research suggests this type of "firm-specific human capital" can have a significant payoff on company performance. The recent loss of so many seasoned workers has likely eroded industry- and firm-specific human capital at many organizations, particularly given that older workers, on average, have longer tenures than their younger colleagues. Recent changes in the labor market have likely increased the number of less-experienced, less-tenured workers in many workplaces while simultaneously reducing the number of workers with higher levels of firm-specific human capital. In addition, older workers often act as mentors or informal trainers to younger, less experienced workers. By "showing the ropes" to new employees to get them up to speed, they help improve outputs and efficiencies that enhance productivity. Unfortunately, many such mentors, whether formal or informal, are no longer in the workforce.

A lesson for the future

One lesson the recent loss of so many workers should teach us is that experienced employees bring value to their organizations that goes well beyond their job-specific contributions. AARP research has shown that most workers enjoy working with colleagues of different ages, that most older workers (79%) enjoy passing on knowledge and skills, and that most younger workers value their older colleagues for their skill as teachers (77%) and for making the workplace more productive (69%).

That lesson points to concrete actions employers can take. Recent labor market trends should encourage more employers to adopt age-inclusive practices that give older workers opportunities to thrive in the workplace longer, even during times of severe disruption and change. Turbulent times may be when their value surges all the more—when their willingness to mentor, on-the-job experience, and institutional and industry knowledge are most needed.

For more jobs data: Find the latest employment data in the AARP Public Policy Institute's (PPI) Employment Data Digest, PPI's monthly review of job trends for those ages 55 and over. Visit the AARP website's work and jobs section for articles on work and unemployment and job search resources. Visit the lifelong learning section for education resources and research.