The advent of artificial intelligence has led to worries that the U.S. faces a future where there will be too few jobs for workers to fill. But the challenge for the economy could be just the opposite: A sharp slowing in the number of people entering the workforce that leads to an unprecedented era of labor scarcity.
It is a development that could profoundly reshape how the economy operates, according to an analysis by Steven Ruggles, a leading demographer. Ruggles says the shift could bolster workers’ bargaining power and drive wages higher.
It could also mean that for the economy to stay healthy it will need the kind of productivity boost AI might bring.
“If there’s an unprecedented labor shortage, this is going to be a huge incentive to adopt labor-saving devices, like AI,” said Ruggles, a professor at the University of Minnesota who won a 2022 MacArthur Genius grant for his work on population statistics.
Both factors appear to have run their course, according to Ruggles. Meanwhile, a sharp decline in the U.S. fertility rate that began in the mid-2000s will make for fewer young people entering adulthood in the years to come.
As the number of workers dwindles, he thinks that wages for young people will rise, leading more people to enter the labor force. He also thinks that organized labor could get a boost.
There are caveats to Ruggles’s scenario: notably that if there were a sharp rebound in immigration, the supply of workers might not be so diminished. But if he is right, the economy will be relying on a smaller labor force for the growth it needs to support an increasing number of older people.
That is where AI could come in. Economists are divided over whether the technology will ultimately take away jobs or if it will instead help workers get more done. AI companies, facing criticism, have lately shifted their messaging from the former to the latter.
But one thing economists agree on is that AI will boost productivity. And new research from Daron Acemoglu, David Autor, Keelan Beirne and Andrew Scott indicates that there is a historical tendency for economies to offset a scarcity of younger workers with efficiency gains.
In a working paper posted to the National Bureau of Economic Research’s website this month, the economists looked both across communities within the U.S. and across countries to analyze how economies respond to lower birthrates. Their core finding: Rather than hampering the economy, slower population growth is associated with higher gross domestic product per working-age adult—and higher wages.
“Labor markets in which workers are scarce work really well for workers and generate productivity gains as well,” said Acemoglu, a Massachusetts Institute of Technology professor who won the 2024 economics Nobel.
Those productivity increases have tended to be enough to support overall GDP growth.
The economists argue that when young workers become scarce, businesses respond by investing more in labor-saving technology. One of the pieces of evidence for this that they uncovered: Countries and U.S. regions with declining birthrates see increases in labor-saving patents.
Whether AI can provide the benefits that past technologies have remains an open question. For example, huge productivity gains from AI could mean “you’re actually laying off workers rather than running after them” despite the shrinking labor pool, said Acemoglu.
Conversely, the productivity gains that AI brings on could be too small, or come too late, to offset the coming demographic shock.
Write to Justin Lahart at Justin.Lahart@wsj.com