The lessons of the last economic crisis always loom large.

Following the Great Recession, a consensus began to build that America hadn’t done enough to stimulate the economy through the early 2010s. A slow recovery meant people were languishing in unemployment, creating long-running problems for themselves and the broader economy.

But when you do too much to stimulate a contracting economy, you can get skyrocketing inflation.

By the time the COVID-19 financial crisis hit, the conventional orthodoxy had been that the government should do much more to prevent long-term unemployment. And it did. America surpassed its allies in stimulus spending. The economy came roaring back—and so did inflation.

While inflation has been the primary story of the COVID-19 economic recovery, pro-worker advocates have also stressed the positives: Workers have seen fantastic gains. Over the last few years, as demand for employment skyrocketed, employees got to be choosy. What bosses called the Great Resignation was actually workers having the power to demand better wages and working conditions, as well as the willingness to quit jobs that wouldn’t offer those things.

On today’s episode of Good on Paper, I’m joined by an economist who is a strong proponent of tight labor markets but worries that people may be taking the wrong lesson from the recent economic recovery. An economy’s health isn’t solely defined by whether or not there’s a labor shortage giving workers power. Adam Ozimek, the chief economist at the Economic Innovation Group, has warned of a “growing chorus” that is overlooking the problems that may stem from the country’s aging workforce.

As Ozimek explains: “I think what’s happened is we had such a growing recognition of the importance of full employment in tight labor markets that now everyone’s looking around—anything that shares anything in common with a tight labor market, they’re like, Ah, that must be good. Less workers—that must be good. This must be good. And I think you have to take a much more nuanced view of the economy.”

Listen to the conversation here:

The following is a transcript of the episode:

[Music]

Jerusalem Demsas: America is getting older.

According to the 2020 census, nearly 56 million of us are 65 and over. That’s nearly 17 percent of the population. With an aging population comes a lot of questions and a lot of worries, but today’s episode focuses on just one: What happens when the workforce gets older? And could that actually be a good thing?

The pandemic economy gave us a glimpse of what it’s like to have a tight labor market—that’s a term you’ll hear a lot in this episode, and it means that there are more job opportunities than workers available to take them.

Over the last few years, businesses have complained about the difficulty in finding workers. Kim Kardashian even told us that nobody wants to work anymore, but in reality, people were working. In fact, labor was in such high demand that it’s no surprise business owners were complaining about having difficulty finding workers. That’s a core feature of a tight labor market.

This shift in the power dynamic between workers and employers has been great for workers. It has meant they can demand higher wages and better working conditions, and can leave jobs that don’t treat them well. Remember the Great Resignation? That was more like the Great Job Hop or the Great “I Quit. You Can’t Tell Me What To Do.”

But if a tight labor market is good for workers, does that mean an aging workforce—where even more workers will exit the labor market—will also be good?

This is Good on Paper, a policy show that questions what we really know about popular narratives. I’m your host, Jerusalem Demsas. And our guest today is Adam Ozimek.

Adam is the chief economist at the Economic Innovation Group, and he’s been tracking what he calls a “growing chorus” within economics and economic journalism. He’s worried that we’re missing the bigger picture of what an aging workforce would look like, which includes some very serious challenges.

And he’s got a great perspective on this because he owns a small business—a bowling alley called Decades, in Lancaster, Pennsylvania. In fact, that’s where I started our conversation about his first-hand experience of tight labor markets.

[Music]

Demsas: Have you experienced any of the worker shortages or anything like that as an employer at Decades?

Adam Ozimek: We certainly did during the height of the pandemic labor shortages. It was definitely something. We had trouble hiring, especially in the kitchen staff. So, yeah, I mean, it was real. It was real here. It was real to the local businesses that we could talk to, and you can see it with your own eyes. But things have normalized to a significant extent now.

Demsas: What did you do? Did you do anything to try to attract more labor? Or did you change anything about how your businesses run?

Ozimek: You have to be careful when it comes to wage setting for a temporary shortage because if you just try to crank up the wages to the market-clearing level, then wages are sticky downward, nominally, so you’re kind of stuck at that level.

So, like a lot of businesses, we did what we could, but you have to just wait it out.

And so we think we’re a pretty good place to work, and so we generally have a pretty easy time recruiting. But when you’re dealing with that kind of temporary, acute shortage, it’s a very different thing than dealing with a long-running, slower-moving change in the balance of labor and capital. And we did raise wages. We just didn’t raise wages high enough to actually be fully staffed up.

We were dealing with shortages a lot of the time. And almost any shortage—an individual firm—you can clear the labor market, right? You just pay more and more and more. And so we could always have had enough workers with the right amount if we wanted to. But then when the labor shortages go away, then you’re stuck with a higher nominal wage than you would need, and that might be competitive, so it’s a mix.

Demsas: Well, to prevent this from becoming an extended, unpaid ad for Decades, in Lancaster, Pennsylvania, we should move on to the broader topic here.

The thing I’m really interested in talking to you about is there’s a broad narrative that I think a lot of people have heard of at this point, right? And it’s under this big umbrella of worker power or workers on top. And there’s this descriptive part of this narrative that says, There’s been a worker shortage after the COVID-19 pandemic hit. And as a result, you’ve seen climbing wages. You see increased pain on the part of employers who are trying to get workers to come in and to work for them and have to provide greater benefits. And there’s also this normative part of the narrative, which is, This is a good thing, and we should encourage worker shortages in order to maintain this balance of power, and that’s a good thing.

So that’s the peg for a lot of what we’re going to talk about here. But before we get into that, and getting into complicating it, as you do in a recent piece you wrote, I want to take a step back and talk about how economic thinking has changed over the last several years.

The recovery following the Great Recession is viewed by most economic policymakers as a failure—that we didn’t do enough on the fiscal front, that the government policy in Congress and the president didn’t do enough, and, also on monetary policy, that the Federal Reserve didn’t do enough to really spur aggregate demand and get workers back in the economy. And there’s a stat that really gets at this: You get really high unemployment after the Great Recession hits, and the stat that a lot of economists like you point out is not the unemployment rate, but the prime-age EPOP. Can you tell us what that is?

Ozimek: Yeah, absolutely. I think it’s a really important statistic that policymakers should keep their eyes on. It’s the prime-employment rate, and that is the share of people aged 25 to 54 who are employed. And the idea here is that this is going to work better than the unemployment rate because the unemployment rate only looks at the percent of people who have jobs, who are looking for jobs.

And so what ends up happening is that in the aftermath of a big shock like the Great Recession, people give up looking for work. And so if you give up looking for work because the labor market is so bad, you don’t get counted in the unemployment rate anymore. And so that motivates the thinking behind the prime EPOP rate, which is, Okay, well, clearly, we shouldn’t exclude someone who’s given up looking for work, but we can’t just look at the share of the overall population who’s employed, because that’ll include seniors and children and college students who don’t work.

So we focus on 25 to 54, which is the prime working years. This is where people are most likely to work, if they’re going to work. And we just say, Let’s look at the share of them that have a job. Let’s forget about whether they’re searching for work, why they may have given up for work—everything like that. Just look at the share who are employed. And this makes sense conceptually. It also has a much stronger relationship to wage growth than the unemployment rate does for the last few decades. So there’s a good empirical reason for thinking that this is a better measure of how tight the labor market is than the unemployment rate.

Demsas: And what’s a good prime-age EPOP?

Ozimek: Well, I think we should be able to get up to 82 percent, which is where we were back in the late ’90s. And we’re still short of there today, but we’re getting better over time. The late ’90s was really the last time that we had a sustainable, tight labor market of the kind that we should hope to replicate.

Demsas: And what was that prime-age EPOP looking like after the Great Recession?

Ozimek: After the Great Recession, it fell down to 75 percent, and it’s spent a lot of time slowly recovering from there.

Demsas: So you have 80 percent of prime-age workers who are working before the Great Recession hits. It drops to 75 percent and only gets back to 80 percent by 2019. So that’s, like, a full decade of us trying to climb back out of that recovery.

And then when COVID-19 hits, it drops all the way down, even dipping slightly below 70. And then it only takes a couple of years—August 2022 is when we get back to 80 percent. So you see much shorter recovery happening there. And what I think has happened there, and you let me know if you agree: It feels like policymakers were really reacting to the Great Recession, in the sense that they hadn’t done enough in the aftermath of that crisis. And you see unprecedented amounts of investment in the American economy following COVID-19, even compared to other countries, like our allies in Europe, who do much less. And, you know, there’s this sense that you should be running the economy hot, that you should be trying to get as much stimulative economic policy in as possible, and that kind of become the name of the game. Is that your sense of what happened in the economic discourse?

Ozimek: Yeah, I think so. After the Great Recession, it was definitely a learning period for a lot of economists and policymakers that what they thought was a labor market was what you call structurally broken: Something’s wrong with it. You know, nobody wants to work anymore. What’s the problem? Why doesn’t anyone want to go back to work? Why is wage growth just broken and stuck in low levels? That was the kind of thinking that dominated.

And then before the pandemic, what happened was the labor market, in fact, did gradually heal, and people came back to work, and it turns out people want to work, and it turns out that wage growth can get back up to really high rates. And so the labor market wasn’t broken; we just didn’t have enough demand. And I do think that a lot of the post-pandemic policymaking is an attempt to not make that same mistake.

But what we realized—what I hope we’ve learned—is that it’s a little bit like Goldilocks and the Three Bears, if you remember that story: This porridge is a little bit too cold. This porridge is a little bit too hot. That, I think, is what happened post-pandemic.

Demsas: So, when people say, We should run the economy hot, and we were trying to get to full employment, what does that mean? What is full employment, and how do we get there?

Ozimek: So full employment definitely is normally thought of by economists as a level of the unemployment rate that is consistent with basically everyone who wants a job can have a job, to the extent that we don’t have accelerating inflation. So you have to think about it as a relationship between the economy bringing everyone to work but not getting so hot that inflation starts to pick up.

So it’s that stable level. That’s a healthy economy. That’s a healthy labor market. There’s different ways to go about it. I mean, a better way to go about it is to get there a little bit gradually. We got there really fast post-pandemic. We put too much demand in the economy, and the demand exceeded our ability to produce it, and that generated high inflation. So there are other paths to full employment.

Demsas: And is the sense that full employment is good for workers because it means that workers have jobs, or are there other reasons why full employment would be good for workers?

Ozimek: Well, the most direct reason is yes, but they have jobs and, also, they have bargaining power, so the wage growth should be higher. We know that’s true. That’s what happens.

Demsas: Can you spell that out for us? How does that happen? How does a tight labor market lead to higher wage growth for workers? What’s actually going on?

Ozimek: Sure. So, I mean, what happens is that people have jobs, and workers are harder to come by. And so, when unemployment is high, you put up a job post, and people line up at the door.

Demsas: Yeah.

Ozimek: It’s easy to get workers. It’s what you might describe as workers having low bargaining power because if someone doesn’t take the job, you know the next guy in line is going to. When labor markets get tighter, unemployment’s lower. There’s fewer people looking for work.

And so what happens is you put up that job post, and you don’t have a line at the door anymore. And so you have to work a little bit harder to get people to apply. So you have to raise your wages. You have to have a more competitive offer, and sometimes you have to even focus on luring workers away from other employers. So you’ve got to raise wages even higher and higher, and that’s what a healthy labor market looks like. It looks like one where firms have to compete in order to get workers.

It does not look like one where when you put that job posting up, you have a line of a thousand workers out the door. I know some businesses like to see that, but that’s just a tremendously unhealthy economy.

Demsas: And so, how would you characterize labor-market power dynamics right now? We hear a lot of things about how it’s a really great economy for workers from economists that say that workers have a ton of power, but it seems like that’s worsening in recent months. So where are we right now?

Ozimek: Well, the reality is that during the pandemic, we went off the map a little bit, and we were on—pre-pandemic—we were on a path to a strong labor market. Wage growth was gradually rising. Employment rates were gradually rising. Things were getting better and better. The pandemic was really a big shock in a lot of different ways that push you off the normal labor-market-heating-up map.

So we had a reduction in labor supply, which means that suddenly a lot of people didn’t want to work. That started to heal as the pandemic economy went on. People came back to work. Wage growth cooled. Job openings went down. So all these different indicators that were screaming, tight labor market, now are cooling down and starting to suggest a more manageable labor market. You can overtighten the labor market. It’s just true.

Demsas: But what does that mean? Why would that be bad? Wouldn’t that be good for workers? What’s overtightening look like?

Ozimek: So what happens is that if you try to overstimulate the economy, people are competing for workers and paying them higher and higher wages, and employment isn’t going up, because everyone who wants a job has one. And what happens is that this generates inflation.

And if labor markets are so tight that inflation is accelerating, that doesn’t leave those workers better off. Because, sure, they’re changing jobs. They’re seeing wage growth. But then inflation erodes that wage growth. And this is how you end up in problems like the 1970s, where inflation becomes unanchored and goes higher and higher. And that’s just a bad way for the economy to go. It eventually leads to a recession. And stagnation followed by a recession, high interest rates—nobody’s happy.

And so it’s better to have that soft landing where wages are growing fast. It’s a great time to find a job, but inflation is not accelerating. It’s holding steady at 2 percent. And over the pandemic, we went a bit beyond that.

Demsas: So it’s like this Goldilocks analogy here, where you’re trying to balance inflation, unemployment—because workers are both consumers and they’re workers. They’re not just workers.

Ozimek: That’s right. You got to get that Goldilocks economy.

Demsas: And so you brought up this question about whether or not we went too far during the pandemic. And there’s this recent research by Arin Dube, who’s at UMass Amherst, and he’s an economist too, and he finds that real wages—which mean wages that are adjusted for inflation—are increasing even for people at the lower end of the distribution. So doesn’t that cut against the idea that maybe it went too far?

Ozimek: It’s not just that they’re increasing for people also at the lower end of the distribution. They’re increasing disproportionately at the lower end of the distribution. So you had a closing of the gap between low-paid workers and high-paid workers. But I think that, obviously, that’s good news, right—the closing of the wage gap. And it’s good that the economy is tight right now.

But if you could rerun it and get us here with a lower inflation rate, there’s no benefit to cruising through a labor market that was excessively tight, especially when you consider the ways in which restricted labor supply has generated a lot of unhealthy things in the economy.

So, obviously, really high wage growth was not great. Now, there’s a variety of factors that contribute to really high inflation growth, but tight labor markets was one of them. And I think that workers aren’t happy when there are shortages. They can’t find the goods that they need. Inflation is high. The housing market is in total chaos. Interest rates are really high, trying to cool down the economy.

And also, you know, I think workers understand what a chaotic labor market looks like. And when your employer can’t hire enough people, and you can’t get the job done, and the business is struggling because there’s a labor shortage, and everyone knows it’s temporary—everyone knows that, Well, some people aren’t coming back to work right now—that’s not a positive outcome for those workers, either. They have to deal with the chaos at work. They have to deal with the inflation at home. And it’s all temporary.

Demsas: So I want to switch gears a little bit to talk about the meat of the conversation we’re going to have here. And we’ve been talking a lot about COVID-19, and I think we’re maybe situating listeners in a world of a short-term labor-shortage shock. When you’re thinking about distinguishing that between medium and long term, what is an actual long-term or medium-term labor shortage? What does that mean? What’s going on there?

Ozimek: Yeah. So the short-term shortages are filled with all sorts of acute problems, like inflation, inability to produce enough goods, and labor markets that don’t look like they’re clearing, job openings that are super high.

A longer-term labor-market shortage looks like an unemployment rate that’s low, and a prime-employment rate that’s high but within historical limits, and wage growth that’s strong. And people are feeling good and happy about their jobs but, importantly, inflation remains well anchored. And so you have to have both pieces of that puzzle. You have to have the labor market that’s strong enough to deliver fast wage growth and lots of good job opportunities, but not so strong that inflation takes off.

And I think that if we can get that kind of labor market and sustain it for longer periods than we have historically, it’s going to pay dividends in a lot of different ways—ways that people are expecting, ways we’re not expecting. I think we will see stronger productivity growth. When firms have to compete for workers, there’s an argument that when workers are harder to come by, that they will embrace more labor-replacing innovations and technology, and that’s a recipe for productivity growth. I believe that that’s true. I think we’ll see stronger things like household formation, entrepreneurship. All sorts of things I think are downstream from strong labor markets in a way that’s not always well understood.

Demsas: There’s a New York Times article that you critiqued—and this one, I think, really gets at the heart of what the problem is in not disaggregating why a labor shortage is happening and what type of labor shortage it actually is or whether it’s full employment or labor shortage.

And this article looks at Vermont, which is a state that’s aging faster than the rest of the country is. And they write that more than a fifth of Vermonters are 65 or older, more than 35 percent are over 54, which is the age that Americans typically begin to exit the workforce, and no state in the country has a smaller share of its residents in their prime working years.

So, they are looking at Vermont as maybe the future of the U.S. Of course, we know, the U.S. is aging, as well. It’s faster than ever. And they’re applying a lot of this reasoning that we’ve started to normalize in economic thinking about labor shortages to this aging workforce. So they’re saying, Okay, well, if there’s an aging workforce, and there are fewer people working, then doesn’t that mean that workers are going to be better off because employers will have to vie for their labor?

And they go and report in Vermont, and they find that you see companies working really, really hard to get workers; you see them working hard to figure out housing for those workers; you see companies investing in productivity-boosting efforts by investing in technology. So, what is the problem with applying our thinking about labor shortages to that problem of a country aging?

Ozimek: Yeah, it’s a great example. I think what’s happened is we had such a growing recognition of the importance of full employment in tight labor markets that now everyone’s looking around—anything that shares anything in common with a tight labor market, they’re like, Ah, that must be good. Less workers—that must be good. This must be good. And I think you have to take a much more nuanced view of the economy and not look at something that isn’t tight labor markets and confuse it for it.

What a state like Vermont would be dealing with with an aging workforce is not something that’s great for the economy. It’s not something that’s great for workers. And to just say, Well, as the population gets older, there’s fewer workers. Therefore, other workers are better off, is way too limited of a lens to look at the problem because an economy getting older has many, many other effects on it—many, many other effects, and these are not good effects. Older workers come, empirically, with slowing population growth. They’re both downstream of declines in birth rates or out-migration or something like that.

And so, empirically, that’s what we see. Places in the U.S. that are getting oldest the fastest, in general, have lower population growth, and a lot of them have falling population growth. Falling population growth is not good for so many different things. Aging population growth—it has a lot of negative downstream factors.

And so you can’t look in isolation and say, Ah, fewer workers. This must be good.

Demsas: All right. We’re going to take a quick break, but more with Adam when we get back.

[Break]

Demsas: I read your critique that you wrote at the Economic Innovation Group—a blog post about why an aging population is not going to help U.S. workers—and I zoomed back to my economic history class in college, like, a decade ago. And I remember learning about the Black Death’s effects on the economy and imagining how people would talk about it now. So the Black Death kills about 17 to 28 million people in Europe—very bad by anyone’s account.

And the effect of that is that wages in England rise from 12 to 28 percent from the 1340s to ’50s, and 20 to 40 percent from the ’40s to ’60s. It’s funny looking back at the historical record here. It’s pretty clear that a lot of the economic discourse sounds similar to now because you also see inflation rising in the aftermath of this, as well.

And I’m quoting here from an econ paper, but they mention that the literate elite “bemoaned a disintegrating social and economic order. And they evoked nostalgia for the peasant who knew his place and worked hard and demanded little and squelched pride while they condemned their present in which land lay unplowed, and only an immediate pang of hunger would goad a lazy and disrespectful grasping peasant to do a moment’s desultory work.”

And I was like, Oh, is this The Wall Street Journal editorial board from 1345? Like, what am I reading here? And, obviously, you have this inflation; you see wages rise; you see inflation eat into those wages. And I think the thing that you’re getting at here is the reason for that labor shortage is really important, as well. Output drops significantly, right? People are themselves not just workers, in this moment, who are happy about their wages, but obviously they’re people who are sad about mass death. And they’re also people who are benefited by increasing output.

Economists use that term to mean all the goods and services produced in an economy. But there’s fewer things happening, right? And so when an aging U.S. population occurs, and you don’t see that replaced, either by immigration or growing population by the natural-born rate increasing, that’s really bad. And I think that corrective is really important.

So then, help us think about this. Like, you hear about a labor shortage going on—how do I think about which ones of these are actually good or not? Narrowly, from the worker perspective, maybe, at first, because I think it’s hard to tell sometimes about why we should not be happy about those things in the short term.

Ozimek: Yeah, I think anywhere where the shortage is coming from basically supply declining, that’s not a great thing. So you don’t want to restore the balance between supply and demand to make labor markets tight by destroying supply or getting rid of supply or reducing the productive capacity of the economy.

That’s where problems arise.

It is absolutely Malthusian thinking. I think that’s a great point to make because the idea back then was, Well, if you have more population growth, everyone is going to be poor, right? Because resources are going to be scarcer relative to population. But the economy hasn’t been Malthusian since the industrial revolution. That’s when we learned how to grow productivity growth faster so that a growing population didn’t mean a poor population.

And so it’s this reaching back for ideas that haven’t been true for hundreds of years. I mean, if it was the case that more people left everyone poorer off, the United States would be destitute compared to a hundred years ago. I mean, the population has tripled. So how have we tripled the population, and incomes and wages have gone higher and higher? It’s really a backwards way to think about the economy that if you have less people, that things will somehow be better off.

And that’s a cousin to the claim that if you have less workers, people will be better off. And I think that you have to think about things that are first order of importance for well-being and progress, which are: innovation, entrepreneurship, and productivity growth. And those three things are just really, empirically well tied to population growth. When you have new people coming in, you’re getting more new businesses, right? Because you both have more new entrepreneurs, and because you have a growing labor force. And businesses start to take advantage of that. You have more innovation, right? Because the population is growing bigger. You have a greater number of innovators there, and innovators create lots of spillovers.

So, you see that in the United States, especially, what we’ve seen is that the number of new businesses has fallen as population growth has gone down. The startup rate has fallen, and so firms become older. They become larger. They become less competitive. You have an economy that just looks more sclerotic over time. And that is absolutely a byproduct of slowing population growth.

And I can tell you this—but this is both empirically very well founded, in the sense that there’s a variety of well-done studies showing it—and I can just tell you, personally, as someone who is an entrepreneur, if you are in a place where the population growth is falling so that every year there’s fewer workers and every year there’s fewer customers, that’s not a great place to start a business, right? It’s very zero-sum.

If you’re in a place where population is growing, so that next year there’ll be more workers to hire, so that next year there’ll be more customers to serve, and you can look to the future, No, look, I can make this investment. I can expand, that’s just a better environment for entrepreneurship. It’s a better environment for innovation, fast-growing startups—things like that.

Demsas: So I want to take one by one the ways in which we should think about the effects of the structural declines in supply of labor, like aging U.S. workforce, as our core example here for why that’s going to happen in the U.S. And there are a lot of things to figure out what the effect of that will be, right? Because in the short term, there probably will be a rise in short-term wages for workers in some of these places.

And you’re trying to balance that question about whether or not it’s good for workers against other things that workers care about. So one is just the broader economy—if it’s doing well, that helps a lot of people. So when we’re talking about this dynamism and the starting of new businesses that you really focused on, help us understand why that’s actually going to go down. Because you also mentioned that during these labor shortages, you actually see productivity rise, right?

In The New York Times article about Vermont, for instance, there’s a cheese factory that is really struggling to find workers. And so they figured out how to package cheese slices automatically, so that makes a worker’s job easier, makes an individual worker more productive. So you see that investment and dynamism happening there.

And you also see, of course, during workforce shortages, both in the aftermath of the Black Death and also following the COVID-19 pandemic, you see a huge rise in entrepreneurship going on. You see massive changes in the structure of the labor market such that people are trying new businesses. How do you balance those things against one another? Isn’t that a lot of dynamism? Isn’t that a lot of productivity-enhancing effects?

Ozimek: Yeah. I think there is a sense in which you just focus on the relative supply and demand of labor, and you think of the situation where worker growth has slowed, or population is declining, or aging is delivering fewer workers that there might be, in a partial sense—partially equilibrium sense as in like, Yes, you can see a little bit there that wages go up a little bit as labor markets feel a little bit tighter. But then you have to zoom out and look at all the other stuff that’s happening, in which case, I don’t think it’s very credible.

If you look at places in the U.S. that have lost lots of population, they are not the most dynamic and innovative parts of the country. Indeed, if you look at very careful econometric analysis, what you find is that, causally, when population growth falls, the number of startups go down. And so, if you’re in a rural area and population starts to fall, there may be some individuals or some time period or in some way of looking at it where you think, Hey, this isn’t so bad. I’m the only person in this town with a skill. And now, I’m in relatively higher demand.

But what happens, as population growth falls, is people stop forming new businesses. So now you might think, Hey, it’s great. I’m in a better competitive position here. But then fast-forward to when there’s only one employer left in the town, right? How does your competitive position look then? And that employer is not investing or expanding, because if he’s the only one—so competition’s gone down—he doesn’t feel that pressure. And also just because older, bigger, slower-growing firms—they’re less likely to innovate. They’re less likely to make productivity improvements. And so that is a better description of how to think about places that have lost population.

Demsas: It’s like you can shrink a pie. And it’s not like people are going to stop being relatively better off than other people. There will always be people who are able to win out, or they will try to innovate in order to make sure they get money. And you can narrowly look at that question and say, Well, see? Some people are better off, and some people are starting businesses, but you’re missing out on the bigger picture, which is that if you don’t have a pie that’s growing, you’re reducing output for everyone. There’s just fewer things for people to buy, and there are fewer innovations happening, which means people’s lives aren’t getting better.

Innovations can be anything from, of course, lifesaving technologies. There are fewer people doing that, but there’s also just cheaper products. You can have more competition for shirts or for basic goods and services. Is that the way to think about it?

Ozimek: Yeah. That’s a huge part of it. And the other thing we haven’t even discussed yet is the fiscal impact of all this, which is that as people leave and places shrink, all of a sudden you have infrastructure that’s fit for a population that’s larger. The tax base shrinks, especially because places in the U.S. that decline are tending to be losing their highest-skilled, highest-paid people. And so the tax base takes a hit, and now the school district can’t afford to have art and music class anymore. Property tax revenues are going up because you’ve got the fire department spread over larger distances. You’re struggling to pay for the roads, the streets, police force—all these different things. Those are expensive, and that’s not good for people, either.

Demsas: And so, workers as workers may be narrowly better off in the short term on raising wages, but they’re worse off as consumers, they’re worse off as members of an economy, and they’re worse off as taxpayers.

And the thing that’s interesting, too, is there’s a lot of admission from the folks that there might be, you know, higher inflation or higher prices in a world where you see these labor shortages happening persistently. And before 2020, if you’d asked me whether I think people would be madder about 10 percent unemployment or 5 to 6 percent inflation, I’d have said, Unemployment’s worse. As long as wages are growing, and eventually after a couple years real wages are even growing, I think people will generally be happier. And I feel like the lesson of the last few years was that no, people are really, really angry about higher prices, even if their wages are growing, even if their real wages are growing. Is that your sense, too?

Ozimek: Yeah, I think people really don’t like inflation. And they think it’s something that happens to them, and it’s easier to take a just-deserts standpoint about job growth. It’s also true that, you know, inflation affects everybody, and unemployment affects the unemployed. It affects all of us in the sense that our labor-market prospects are weaker when unemployment is high, so it’s not literally that only the unemployed are affected, but most of the burden is visited upon those several percent who don’t have work.

And so inflation kind of hits everybody. So I hope that policymakers aren’t so afraid of inflation that in the future, it’s like, Well, we might overheat a little bit. We shouldn’t be afraid of 3 percent inflation. Three percent inflation for, you know, a temporary time period, as we try to recover from a recession at some point, I don’t think that’s going to drive people really insanely mad about the economy.

Demsas: Well, going back to sort of the fundamental problem here. People are trying to put a positive spin on aging U.S. population, but even if they’re wrong about the long-term net impact of what that will look like for workers, it seems like it’s going to happen to us regardless. So when you think about solutions to that, what should you do? If we’re going to have this aging population, if it’s going to be bad, what should the country do to stop it?

Ozimek: It’s a great question. There’s hard things and easy things we can do. The hard things are to try to improve the birth rate. That can include being more generous through the tax system to parents, trying to reduce the cost of childcare. There’s a lot of different things we can talk about there, but I think everyone recognizes that that’s tough. It doesn’t mean we shouldn’t try, but it is hard.

The easy thing is: Let in the people who want to come here, of which there are many, and with high skills. If we let those people in, it’s not only going to help offset the declining population, but it’ll help offset the negative impacts of the declining population on productivity, growth, and innovation—things like that.

Demsas: It’s funny. I feel like, in many ways, the all labor shortages are good thinking is kind of a function of, also, bad immigration-economics thinking. So, like, thinking that, you know, choking off immigration will raise native-born wages is a common thing that people believe. And it translates to the whole, like, Well, if there are fewer workers here, then that’ll help U.S. workers because that will help them raise their wages, but it ignores how much immigrants also contribute to demand for goods and services. So it seems very similar to me as the thinking that leads you down the pro-all-labor-shortages thinking.

Ozimek: It’s a very related mistake. Not only is it ignoring demand, but it’s ignoring innovation, entrepreneurship, productivity growth—those other things that matter in addition to demand that we know immigrants have an outsized impact on.

So yeah, it’s another example of missing the bigger picture, focusing too narrowly, and coming up with an idea that is ultimately Malthusian and backwards looking and counterproductive.

Demsas: And part of the problem, it seems to me, is that it’s easy to grasp the way that rising wages are good for workers. These other things we talk about feel very general, right? It feels very general to talk about dynamism or even to talk about things like output or increasing goods and services, or someone creating a startup somewhere else.

Why that matters to an individual worker is so much less concrete. It’s harder to draw the line between someone going, Oh, okay, I know that that construction— I’m the only person in town who can fix cars. I’m the only car mechanic in town. Therefore, everyone has to come to me. That’s fantastic for me. But it’s harder to explain how, Oh, a bunch of people moving here with various different good skills is going to benefit me and my community in the long term. How do you explain that to people?

Ozimek: Yeah, the Malthusians have the intuition advantage here. It’s easy to paint a very negative story that’s compelling to people.

I would point to two different things that I think have an equal level of intuition. One is the example I gave earlier, which is that population growth has tripled over the last hundred years, and the economy has not become weaker. We are richer than we’ve ever been. We’re wealthier than we’ve ever been. Clearly, obviously, we can have tight labor markets with a population of well over 300 million, and so more people does not translate to a weaker labor market.

The other example I would give is I would say, Let’s look at some post-industrial cities that saw massive population loss. I mean, when you look at a place like Detroit, do you say, Ah, there’s a place with a successful model that we should replicate? That’s a place that shrank massively. And I don’t think it’s a place where you can say the absence of workers has left everybody else better off. You have empty buildings. You have not just empty buildings but empty blocks, demolished houses, massive fiscal problems. They’re struggling to keep the lights on. They’re struggling to repair the streets. And I’ll say Detroit has been bouncing back somewhat, so I’m being a little bit unfair to Detroit here, but they went through a tremendously long period of struggle, and shrinking population was what we were seeing there, and it was not something that left them better off.

Demsas: I think it’s funny because, in many ways, I actually do think the idea that an aging population being good for workers is counterintuitive. Most people, when they go to depopulating places, they can feel it. They can feel like it doesn’t feel good, right? The Vermont towns where you see aging and you don’t see young people being able to stick around, people aren’t happy about that situation, even if you do see some of these gains that they talk about. So, it’s funny—in some ways, it does seem like you’re able to get that intuition.

But our last question is always the same: What’s an idea that you had that was good on paper, but maybe didn’t pan out?

Ozimek: I think I would talk to an issue that’s very near and dear to your heart, which is the housing market. And it wasn’t necessarily my idea on paper, but it was everyone’s idea on paper, which was the idea that if we get rid of single-family housing bans, it is going to be mission accomplished.

Demsas: Yeah, I’ve definitely covered this. I feel like everyone—well, a lot of people—really thought that you could just get rid of single-family zoning and you could really solve the housing shortage.

Ozimek: There’s a strong intuition here in the sense that places that only allow single-family housing, Well, geez, that’s a huge problem, right? That’s not good for housing supply. That’s not good for housing affordability.

And so, it was relatively persuasive, the idea that, on paper, when you get rid of those single-family-only laws, it’s going to lead to a huge increase in supply. And I think what we’ve learned is that it’s a lot more complex than that, and that for every obvious bad law on the books, there’s going to be 20 to 30 less-obvious bad laws that are also blocking supply. I say simple housing reforms are the idea that was good on paper and not turning out as well as we’d like the reality.

Demsas: Yeah, it feels any time you feel like there’s one weird trick that can solve all your problems, you’re probably looking at an internet ad and not an actual fix for society’s ills.

[Music]

Ozimek: Yes, we need a hundred tricks.

Demsas: (Laughs.) Well, Adam Ozimek, thank you so much for coming on the show. We’re so excited to have you and can’t wait to have you back.

Ozimek: Thanks.

[Music]

Demsas: Good on Paper is produced by Jinae West. It was edited by Dave Shaw, fact-checked by Ena Alvarado, and engineered by Erica Huang. Our theme music is composed by Rob Smierciak. Claudine Ebeid is the executive producer of Atlantic audio, and Andrea Valdez is our managing editor.

And hey, if you like what you’re hearing, please leave us a rating and review on Apple Podcasts.

I’m Jerusalem Demsas, and we’ll see you next week.

Demsas: I want to come up with a good joke about an economist at a bowling alley. But I couldn’t think of a good joke, and so I asked ChatGPT. So I’m just going to tell you ChatGPT’s joke. So the joke is: Why did the economist bowling team always lose?

Ozimek: I don’t know.

Demsas: Because they were better at predicting strikes than hitting them.

Ozimek: Okay. Not bad.

Demsas: I think that’s not that bad, actually.

Ozimek: That’s not that bad.