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Older workers helped fuel recent U.S. growth. Can it last?

[April 24, 2019] By Howard Schneider

MILWAUKEE, Wis. (Reuters) - As a record-breaking economic expansion nears the decade mark, people like Marty Groth may determine whether it is forced into a lower gear.

Not long ago, the 60-year-old Groth found himself out of a job and considered retiring on a pension built over a career of maintaining computer servers and printers.

Instead, he returned to school to update his computer skills and will soon join a Wisconsin labor force that is decidedly short of workers.

"I could retire now if I wanted," Groth said. "But I am thinking, I like working."

Over the last three years, around 3 million Americans over 55 joined or rejoined the workforce, federal data show. The addition of these older workers not only contributed to economic growth, experts say, but helped stop a national decline in the share of adults working or looking for work.

The trend may have run its course. After adding 5 million new and returning workers of all ages from 2016 to 2018, the U.S. labor force shrank during the first three months of this year. (Graphic: https://tmsnrt.rs/2IpdXGq)

From healthcare to manufacturing, companies in places like Wisconsin are taking longer to hire as they struggle to find workers; some have delayed projects, others have become more willing to hire ex-convicts and less experienced workers bypassed when labor markets were looser, local officials say.

Blue-collar workers are putting in more hours, data show, while overall labor productivity is increasing. Nationally, wages are rising.

The upshot, according to policymakers, business executives and labor experts interviewed by Reuters, is that the labor market may be nearing its limits.

Over a long enough period, labor shortages can spark investment and raise productivity as companies retool. They can also improve opportunities for minorities with unemployment rates higher than those for whites.

But in the short run they pose a drag.

"Any employer, if they are willing to raise wages enough, at some point will get all the workers they need," said Gad Levanon, chief economist at the Conference Board and author of a recent report on labor market constraints. "But it is coming at a higher cost... Projects that were profitable in a lower wage environment are not profitable anymore."

DEALING WITH IT 'DAY IN AND DAY OUT'

The corridor connecting Chicago to Milwaukee is a testament to the long-running economic expansion.

This is not the Wisconsin of pastures and dairy farms, but a landscape brimming with fulfillment centers and factories. A new interstate lane will allow autonomous trucks to deliver supplies for a high-tech plant being built by China's Foxconn.

But the combination of low unemployment and an older population puts Wisconsin at the leading edge of where the country's workforce as a whole is heading.

It is also a political battleground state, meaning the health of its economy will likely have consequences for the 2020 presidential election. Democrats will hold their convention in Milwaukee next summer.

Wages in Wisconsin rose 5 percent in 2018, compared to around 3 percent nationally, and the unemployment rate hit a record low 2.9 percent for several months in 2018 and again in February.

As chief economist at the Wisconsin Department of Workforce Development, Dennis Winters keeps close tabs on the state's hiring. The labor shortage, he says, "is real, and people are trying to deal with it day in and day out."

Sarah Condella, senior vice president for human resources at Exact Sciences Corp, is among them.

She joined the Madison-based company in 2012 when it employed 50 people and oversaw its growth to roughly 2,000 workers as doctors expanded use of its colorectal cancer test.

Along the way, Exact Sciences lifted starting pay to $15 an hour, roughly double the state's minimum wage. It added perks like bus passes and flexible shifts and has plans for food service at its expanding campus.

Still, it has more than 400 vacancies, and the time to hire entry-level workers has grown from fewer than 30 days to around 45. Finding them requires radio ads, billboards and other tools not typical for a life sciences company.

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Patrick McHugh lectures to an information technology class at the Milwaukee Area Technical College in Milwaukee, Wisconsin, U.S., March 28, 2019. REUTERS/Howard Schneider

It is a story repeated across Wisconsin.

Banking officials say deals are being delayed because supply chains are clogged and service companies booked, nipping the financial sector's potential.

Half of respondents to a survey by the Wisconsin Manufacturers & Commerce trade group cited labor shortage as the top issue facing companies and the state, ahead of healthcare and regulation. A majority said they planned to increase wages at least 3 percent as they add headcount this year.

Coupled with productivity, the number of people working is the core reason economies expand, and the expected slow growth of the labor force a main reason why Federal Reserve officials and others expect the U.S. economy will cool.

SEEKING: EX-CONVICTS, RECOVERING ADDICTS

Scott Jansen, chief operating officer of Employ Milwaukee, said his work is an exercise in finding anyone available.

A semi-trailer packed with advanced machine tools now tours state prisons so inmates can be released with an in-demand skill. In Milwaukee, his agency works through churches and community groups to contact the homeless, the less educated, immigrants and others who might be reluctant to appear at a government office.

It is a reversal from the years following the economic crisis, when employers had their pick of applicants, and workers often took jobs for which they were overqualified. Millions were simply sidelined. (Graphic: https://tmsnrt.rs/2X9mu3q)

Today, Jansen said, employers are more willing to adapt job requirements to disabled workers, and more open to hiring those hardest hit during the financial crisis, like ex-convicts and those coping with addiction.

Throughout his 20s, Lee Baumann said he bounced between idleness and marginal jobs as he battled opioids. After training as a computer technician he was hired by Northwestern Mutual and is now a senior technical analyst.

"That life took me away. Three years of solid use," Baumann said. A recent promotion raised his pay to $20 an hour, and he is saving to finish his associate degree.

Nationally, the labor force participation rate for prime-age workers like Baumann between the ages of 25 and 54 reversed a long decline around 2013. It is now near the peak hit in the 1990s.

It was largely people like Groth, the 60-year-old who is back in school, who padded the workforce. According to the Bureau of Labor Statistics, that over-55 age group was the only one whose participation rate grew from 2006 to 2016.

A recent study by economist Jay Shambaugh and others for the Brookings Institution concluded the decision of so many older workers to remain in the workforce, or rejoin it, was the main reason the U.S. participation rate stabilized at around 63 percent.

But even that group cannot be relied upon: Some 226,000 over-55 workers left the labor market in March, the most in nearly three years.

Even if people like Groth are motivated to work a bit longer, they will eventually leave. Wisconsin will see that frontier first. The share of state population over 55 jumped from 26 percent to over 30 percent from 2010 to 2017; the share 65 and over, a traditional retirement plateau, jumped from 13.6 percent to 16.4 percent, according to census data.

"Adding more workers is a big part of getting GDP to grow," Shambaugh said. With an aging population, choices by those like Groth are "a big part of your growth over the next decade."

(Reporting by Howard Schneider; Editing by Dan Burns and Paul Thomasch)

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