A mild labor marketdownturn, or a multi-year period without much net job growth, maynot feel like much of a downturn at all if it's happening during atime when the number of older workers is shrinking. (Photo:Shutterstock)

(Bloomberg Opinion) –The next downturn won't look like the lastone.

For one thing, labor force demographics were a drag on economicgrowth last time, but they should help minimize economic weaknessthis time.

The key factor when thinking about the interaction between laborforce demographics and the economic cycle is the role played by thebaby boomer generation — because of their sheer numbers.

The population bulge of people born between the early1940s and the early 1960s is visible both in populationdata and in the labor force data. Because people tend to actdifferently at different phases of life, as the boomers have passedthrough their working years they have distorted the economy.

Baby boomers acted as a drag on the economy in the aftermath ofthe great recession because it occurred during the peak savingyears of the generation. Saving rates tend to be higherfor older workers because older workers have higherincomes than younger workers do, they're more focused on saving fortheir approaching retirements than younger workers, and because thebulk of their spending on raising families may be behind them.

When the bulk of the growth of the labor market is occurringbecause more older workers are working longer, as it has been forthe past decade, this acts as a relative drag on economic growthoverall because these older workers are saving for retirementrather than demand-generating activities like buying houses andraising families.

After the great recession, some referred to the 2000s as a lostdecade for employment because there was very little net job growthduring that decade.

For younger workers — those under say age 55 — things have beenmuch bleaker: From April 2000 until today there has beenessentially no net growth of employment for workers under age55.

Over that same time, employment for workers over age 55 hasdoubled. That's how much of an impact the aging of the baby boomergeneration has had.

But this is about to change.

Perhaps as soon as this year, employment of people over the ageof 55 should peak, after which it would decline for the next 15years. We know this because the same pattern has played out forevery other age bracket that baby boomers have passed through.

The pattern has been 23 years of growth for an age bracketfollowed by 15 years of decline.

This accounts for the size of the baby boomer generation (23years) followed by a 15-year lull until births began to pick up inthe late 1970s.

• The age 25 to 34 labor force grew from 1966 through1989 then declined for about 15 years.
• The age 35 to 44 labor force grew from 1974 to 1997 thendeclined for about 15 years.
• For age 45 to 54 the growth period was from 1984 to 2007.
• And for age 55-plus the growth wave began in 1996.

This matters because a mild labor market downturn, or amulti-year period without much net job growth, may not feel likemuch of a downturn at all if it's happening during a time when thenumber of older workers is shrinking.

As Bill McBride of Calculated Risk has pointed out, in2020 the three largest age cohorts of Americans are going to be 25through 29, 30 through 34, and 35 through 39.

These are the consumption-intensive family formation years.Older workers retiring, with those jobs, promotions, and raisesbeing taken by younger workers, could act as a stimulus and keepany downturn mild and short.

There are a variety of reasons the economy may have disappointedAmericans since the year 2000, from bubbles to policy errors todebt overhangs. But to the extent that demographics and an agingworkforce have contributed, the future is looking bright.

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