Goldman just figured out why the labor shortage will last for a long time: 60% of the missing workers retired, many for good


Juliana Kaplan,Madison Hoff
Fri, November 12, 2021

The people who retired during the pandemic probably won't come back. MoMo Productions/Getty


Labor shortages have persisted for months on end as the economy recovers from the pandemic.


Goldman Sachs finds that 5 million people left the labor force during the pandemic.


And about 2.5 million of those people retired, and won't come back - leaving big labor holes.

Reports of labor shortages may not end anytime soon because a hefty number of retirement age workers have left the labor force - and a whole lot of them may not be coming back.

A Friday note from Goldman Sachs researchers led by Jan Hatzius finds that 3.4 million of the people who left the labor force - meaning they're not working or aren't actively looking for work - are over 55. Roughly 1.5 million of them were early retirements, and 1 million were normal retirements. Those two groups of retirements "likely won't reverse," meaning that, out of the five million workers Goldman estimates are still missing from the labor force, about half may not ever return.

That's bad news for a labor-crunched market as Wendy's closes dining rooms early, a childcare company in California is shutters because it can't hire, and cleaning companies are canceling jobs because they don't have the people to staff them. However, it could be good news for the job seekers who remain, and have been able to leverage shortages to get better wages and demand better conditions.

The pandemic ushered in an era of older workers throwing in the towel sooner

Research from the Federal Reserve Bank of Kansas City found that, had retirement kept pace with its trend from 2010-2020, there would have been 1.5 million more retirees during the pandemic. But that number actually came in over three million; the number of early retirees alone accounted for predicted retirement numbers.

As Goldman notes, retiring "tends to be stickier" than other reasons someone might leave the labor force. Because of that, "we therefore expect that the participation shortfall from early retirees will unwind relatively slowly through fewer new retirements going forward."

Interestingly, the Kansas Fed found that increases in retirement were driven by retirees opting not to come back to the labor force; normally, some retirees return for a variety of reasons. As Glassdoor senior economist Daniel Zhao noted in a tweet, the "return flow to the labor is diminished," but the best case scenario in the future is the end of the pandemic - coupled with a tight labor market - luring those retirees back.

But, as Labor Secretary Marty Walsh told Insider, the pandemic brought about unprecedented times, and older workers may still be concerned about the health risks the virus continues to pose.

Those 2.5 million retirees abstaining will probably be acutely felt for now. The number of workers quitting their jobs just reached yet another record high. That's good news for workers, who continue to switch into new roles and push wages higher, but it means that labor shortages may stick around for a little while longer.