Top Economist Issues Surprise Take on Weak Jobs Data as Labor Pool Shrinks: 'There Is Demand, But There's Not Enough Supply'

Economists may be looking at the latest labor market data the wrong way, according to Laura Ullrich, director of economics at Indeed Hiring Lab and a former Richmond Fed economist, who says the recent drop in labor force participation reflects a shrinking supply of workers rather than weakening demand for jobs.

In an interview published Wednesday by Fortune, Ullrich said June’s decline in the U.S. labor force participation rate to 61.5%, the lowest reading outside the pandemic since 1976, should not be viewed simply as workers giving up on finding jobs. “Historically, you’ve been able to look at jobs numbers… and say there was less demand for those workers,” Ullrich said. “But I think now… it actually could be labor supply driving some of that.

There are two reasons why you might not add jobs in a month: One is there’s no demand for workers, the other is there is demand, but there’s not enough supply.” The comments come after last week’s June jobs report showed employers added 57,000 jobs, well below expectations, while the labor force participation rate fell to 61.5%.

The unemployment rate also edged lower, partly because fewer people were participating in the labor force rather than because more workers found jobs.

Retirements and Immigration Are Driving the Shift Ullrich pointed to research she co-authored in May titled The Great Mismatch: How a Shrinking Workforce, AI, and Labor Reallocation Will Define the Next 15 Years, which projected the U.S. labor force would begin shrinking in 2026.

The report attributes the decline primarily to accelerating Baby Boomer retirements, which Ullrich describes as a “demographic cliff,” along with lower immigration.

The researchers estimate the labor force will shrink by roughly 3.7%, or about 5.9 million workers, between 2025 and 2032 before partially recovering.

Under a more severe AI disruption scenario, the unemployment rate could rise by between 0.5 and 3.5 percentage points by 2040, approaching 8%.

Ullrich also noted that foreign-born workers tend to have higher labor force participation rates and are generally younger than native-born Americans, meaning slower immigration could further reduce the available workforce.

Read Also: Jim Cramer: Fast Food Is 'Challenged,' But This Industrial Stock Is 'A Good Spec' AI Isn’t the Biggest Driver While artificial intelligence is expected to reshape hiring across industries such as finance, information technology and professional services, Ullrich said demographics remain the much bigger force behind the changing labor market. “No matter what we did with AI in our model, demographics were the bigger story,” she said.

Her comments add another perspective to the growing debate over AI’s impact on employment.

In June, Apollo Global Management (NYSE: APO ) Chief Economist Torsten Sløk said there was “zero evidence” that AI was causing widespread job losses, arguing that AI investment continues to support hiring rather than replace workers on a broad scale.

While AI may accelerate changes in some sectors, Ullrich said the larger challenge facing employers over the coming years will be finding enough workers as the U.S. population ages and labor force growth slows.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published editors.

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