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Where Will Tomorrow’s Workers Come From?

With the unemployment rate still coming down from its double-digit heights, few people in the U.S. are talking about what may be one of the biggest economic problems in our future: a labor shortage.

In fact, however, one of the main reasons the unemployment rate has fallen faster than many analysts predicted is that the number of people seeking work has declined. Bloomberg recently reported that overall participation in the workforce is now at its lowest point since 1984, when women were still being fully integrated into the labor market.

Part of the reason is not economics, but demographics. This year, the babies who were born in 1946, right after World War II ended, are turning 65. Over the next 18 years, a quarter of the current population, those born between 1946 and 1964, will hit traditional retirement age. The baby boom has become a retirement boom.

At the other end of the spectrum, the U.S. birth rate hit its lowest point in at least a century last August. In response to the report, Andrew Cherlin, a sociology professor at Johns Hopkins University, said there was no need to worry about “birth dearth” because the birth rate in the U.S. was “still higher than the birth rate in many wealthy countries and we also have many immigrants entering the country.”

We may be better than some places, but that is not really the point. The important questions are whether we are as good at attracting and developing workers as we need to be, and whether our policies are going to help us get better or are make us worse.

Japan and Germany both offer examples of what can happen to us if we don’t do a good job of meeting our labor needs .

Unlike the U.S., Japan has already started to shrink, and its population decline is likely to continue picking up speed in the near future. Already, a quarter of Japanese are 65 or older. But instead of preparing the next generation of leaders, Japanese companies, driven by rigid hiring policies and cultural norms, are shunting young people into poorly paid, dead-end jobs while sheltering older employees.

Given the scarcity of good jobs open to young workers, intense competition has put an end to the experimentation and risk that could otherwise spur entrepreneurship. The country that gave us the Walkman is becoming irrelevant in the era of the smart phone. The society that virtually perfected the “salaryman” offers neither job security nor advancement opportunity to today’s youth.

Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute in Tokyo, told Bloomberg, “Many of Japan’s youth have become part of a lost generation that can’t find full-time work or get paid the amount they deserve. This means more workers are missing out on the chance to gain the skills they need.”

Standard & Poor’s recently pointed to problems ahead for Japan by lowering its sovereign credit rating for the country from AA to AA-, three levels below the highest grade. The agency mentioned the country’s lack of a “coherent strategy” to address its deficit and the possibility that its future population may not be able to support the burden of its debts.

In the U.S., the recent recession was particularly hard on young people, who in many cases had job offers snatched away by companies trying to protect existing staff. I have written about how high minimum wages and tough restrictions on unpaid internships conspire to rob new workers of the opportunities they need to build job skills. Fortunately, America’s traditional emphasis on innovation has led many young people here, unlike their Japanese counterparts, to turn to entrepreneurship as a way to enter the business world. Japan has no answer to Google and Facebook’s global success. Still, we would do well to remember that honoring seniority comes at the expense of opening jobs up to those who will have to hold them in the future.

Germany, like the U.S. and Japan, faces an aging population. Employers in certain fields already struggle to find enough workers. Dana Russow, the director of a nursing home in southwest Berlin, told The New York Times, “It’s not easy finding qualified staff to take care of the elderly.” The Federal Association for Information Technology, Telecommunications and New Media, Germany’s leading high-tech industry organization, says its members are short 28,000 qualified workers.

Considering its reputation as a well-run country with high average salaries and a very good social welfare system, Germany should have no problem attracting highly skilled workers. However, until recently, it took a critical view toward immigration, erecting numerous obstacles on the theory that an influx of foreign-born workers would take jobs from Germans.

Germany, together with its neighboring Austria, plans to implement new immigration measures on May 1 to try to attract workers from Eastern Europe. But it may be too late. While Germany was busy keeping people out, talented workers from the eight East European countries that joined the European Union in 2005 flocked to countries that made immigration easy, like the U.K., Ireland and Sweden. Even though Germany is currently outperforming those countries, it remains to be seen how many of those ambitious workers will want to uproot themselves for a second time within a decade.

Our misguidedly restrictive immigration policies could put us in the same trap Germany fell into. Yet, instead of seeking to attract people who offer creative talent or exceptionally hard work, many U.S. lawmakers continue to work to lock out those perceived competitors to American workers, and to express the protectionist sentiments that Germany is trying to put behind it.

After President Obama promised in his State of the Union speech to “address the millions of undocumented workers who are now living in the shadows,” Rep. Lamar Smith, R-Texas, declared, “While more than 14 million Americans are desperately looking for work, seven million illegal immigrants have jobs in the U.S. The president should put American workers first and enforce immigration laws to make scarce jobs available for those legally authorized to work in the U.S.”

In his speech, Obama paid particular attention to the “talented, responsible young people” who would have been protected by the ill-fated Dream Act. The bill, which Obama didn’t mention directly, would have provided amnesty after two years of college or military service to those brought to the U.S. as children. It died in the Senate in December.

In addition to deporting “illegal” young adult immigrants, whose only crime has been to live with their parents while they grew up, the U.S. also makes it difficult for foreign students to legally stay after they earn their degrees. We thus send away the very people we ought to be working to attract.

American history is a history of immigration. Foreign-born Americans built our railroads, dug our mines and harvested our crops. Alexander Graham Bell, a Scot, gave this country a lead in telecommunications that it has retained for more than a century. European scientists, fleeing that continent before World War II, cemented our place as a superpower by giving us the lead in physics and, later, in aerospace.

Yet our history is also a history of xenophobia and exclusion. Laws and quotas have discriminated against Irish, Asians, Italians, Jews and many others. And, of course, the Africans who never had the choice not to become Americans did some of the hardest, most backbreaking work in this country, under the most atrocious conditions. Our national story is not one of a placid melting pot; it is one of a simmering cauldron, boiling with struggle and resentment.

Now, however, if we want to remain prosperous, we will have to get over our fears of competition and become a meritocracy. We have to treat talent and labor like any other commodity, to be developed domestically and imported from abroad as the situation dictates. Democrats will need to get past their union-inspired fears of cheap immigrant labor, and some Republicans have to get beyond their xenophobia. Prosperity, as at least these Republicans ought to know, is not a zero-sum game.

We know what the future looks like if we don't manage our workforce issues. It looks like Germany and Japan, and it isn't especially pretty.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s most recent book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.

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