The great contraction

After decades of expansion, the global labour force will contract as demographics turn & frictions on global flows strengthen

A regular theme of these notes is the regime change underway in geopolitics, globalisation, and economic policy.  Another regime change is a global demographic transition: the great contraction of the global labour supply.

Global labour markets are tightening structurally, with implications for wages, the income distribution, and business/growth models.  Firms, investors, and policy-makers need to adapt to a new world, very different from the era of low cost, abundant labour supply that has prevailed over much of the past few decades. 

Labour markets are already tight across advanced economies.  Unemployment rates sit close to record lows in the US, the UK, the EU, as well as in Australia, New Zealand, and beyond.  Some of this is due to reduced participation rates after Covid, notably in the UK and the US, as some people withdrew from the labour force, voluntarily or because of sickness.  There were also substantial numbers of excess deaths, although on a smaller scale than in previous…