by Robert Barbera & Jonathan Wright
Labor force growth determines the steady-state monthly change in payrolls. Recently, payrolls have expanded at a fast clip notwithstanding a slight uptick in the unemployment rate. The reason why the economy, despite aging baby boomers leaving the work force, can sustainably expand payrolls by about 200,000 per month is because of net immigration.
Once a year, the Bureau of Labor Statistics (BLS) updates their estimate of the size of the working-age population to align with updated Census estimates. This gives us a snapshot into what is happening to population and its implications for labor market numbers. Below are the estimates of the size of the working age population as of December 2024, before and after the population benchmarking. The increase was about 3 million, and the Census Bureau made clear that the dramatic upward revision was almost entirely due to new data on net immigration. Importantly, most of these newly found individuals are in the 25 to 54 age range, pushing up the prime age labor force participation rate.
December 2024 Population in CPS
| (millions) | Before | After | Change (%) |
| Total | 269.6 | 272.7 | 1.13% |
| 16 to 24 | 39.1 | 39.8 | 1.70% |
| 25 to 54 | 128.9 | 130.8 | 1.47% |
| 55 to 64 | 41.1 | 41.2 | 0.36% |
| 65 and up | 60.6 | 60.9 | 0.55% |
The BLS Current Population Survey (CPS) is a monthly survey that tallies the percent of people who self-identify as employed. They multiply this percentage by their estimate of the size of the working age population. Accordingly, the nearly 3 million upward revision to their population estimate lifted the estimate of household employment by 2 million, or roughly 56,000 per month over the three-year period.
The BLS Current Establishment Statistics (CES) counts the actual jobs and so does not rely on an estimate of the working age population. The BLS revised down its estimates of job growth collected in the CES for reasons unrelated to the population adjustment. Much was made of the two series’ wild divergence, before revisions. The snapshot now looks a lot more believable:
Average Monthly Gains (in thousands) 2022-2024 before and after revisions
| Before | After | |
| CPS Household | 155 | 210 |
| CES Establishment | 271 | 254 |
Clearly, the recent strength of the labor market was supported by net immigration, as totals rose and these gains were concentrated in the prime age population. The recent role of net immigration matters because we now must contemplate a world where baby boomer retirement is accelerating and net immigration may not be there to provide an offset.
The Census bureau has projections of what to expect 2025-2030 in various scenarios. One is a low immigration scenario another is a zero immigration (which means negative net immigration). The Table below shows the Census population change projections for 2025-2030 in these scenarios. On the last row we add a computation, the implied change in the total labor force per month over this five-year period, assuming the labor force participation rate for each age cohort remains the same[1].
| Age Cohort | Low Immigration Population Change | Zero Immigration Population Change |
| 16-24 | -1.33m | -1.89m |
| 25-54 | +2.48m | -0.26m |
| 55-64 | -2.38m | -2.68m |
| 65 Up | +7.68m | +7.32m |
| Average per month total labor force change | +21,000 | -27,000 |
Both scenarios have the labor force stagnating as the demographic headwinds overpower any remaining immigration. The non-inflationary pace for job growth consequently plunges[2]. In this world, a steady unemployment rate translates to no gains for employment. Alternatively, imagine policies are put in place that, for two years, deliver modest job growth, say 150,000 per month. To secure a two-year gain of 1.8 million jobs would require a jobless rate decline that, end of 2026, puts unemployment at roughly 2%–a level 1.4 percentage points lower than any reading, 1960 to present.
For nearly two decades, we have been staunch sceptics of the notion that it is easy to tell when U* is close at hand, and curtailing jobs growth is a must. That said, we are willing to go out on a limb and assert that, if net immigration gains evaporate and a plunge to 2% for unemployment is the only path to modest job gains, that pursuit would almost certainly deliver serious inflationary pressures.
[1] The overall participation rate falls dramatically, as the 65+cohort soars as a share of the total population.
[2] Even a decline of net immigration to a pace of about 750,000 a year —while not far below the pre-pandemic average pace— would result in a sharp decline in steady state job growth once confronted by the headwinds of the baby boomers retiring.