Suddenly, the term “supply-side economics” is taking on a very different definition from what it meant half a century ago.
It’s true that soaring gas prices and supply-chain shortages are prompting pundits to draw comparisons to the 1970s, but one emerging trend is diametrically different. Fifty years ago, the big bulge of baby boomers were entering the labor force. Today they are leaving.
Around the world, labor shortages are likely to continue to surge in the next decade. The advisory business is hardly typical of most industries, but many RIA leaders are reporting that a talent shortage has been the biggest constraint on their growth—and that this had been a problem for years before the pandemic.
Consequently, many firms that want to grow have had no other choice but to poach young advisors from their rivals. The upshot is an inevitable squeeze on profit margins, but it’s something the advisory business can deal with.
Elsewhere in the economy, a similar picture is emerging. But other industries might have a harder time than advisors in addressing the wage pressures from workers—who haven’t enjoyed this much bargaining power for decades.
Employees at Deere & Co. recently rejected offers of 5% and 6% raises, something that would have been unthinkable a decade ago. At press time, auto workers in Detroit and film industry employees in Hollywood were threatening to strike.
Even when unemployment peaked after the Great Recession in 2009, economists could look at age and population trends and foresee that many nations would start to run low on workers a decade later. Now it’s happening.
The 4.3 million workers who quit their jobs in August may be an outlier statistic, but most of them were not 18-year-olds quitting their jobs as waiters and retail clerks to return to college. One irony in all this is that when it comes to demographics, America is in much better shape than most countries.
Some observers like Ed Yardeni believe the economy will eventually solve this problem through a massive surge in productivity and automation. It’s worth recalling that back in the 1970s, the labor market managed to accommodate—with fits and starts—all the young workers seeking employment. Popular conceptions are so powerful that few people today realize how the American economy saw higher GDP growth in the 1970s than it did in the 1980s.
Just as robo-advisors are attempting to fill the supply shortage of human advisors, other industries will need to follow suit. However, the implications may not be as dire as some predictions that automation will displace millions of workers, leaving pervasive social unrest in its wake. Indeed, it’s possible that a boom in productivity ultimately could justify today’s equity prices. Time will tell.
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