Matthew Klein explains in a Barron’s column how the millennial generation could contribute to a surge in American productivity in the years ahead.
The overall age of the workforce is also important. Dartmouth College economist James Feyrer first made this argument in 2002. Workers who are young and inexperienced tend to be bad at their jobs, while those who are old tend to be set in their ways and unwilling to embrace new ideas. Feyrer found that the growth rate of productivity tended to track changes in the proportion of workers aged 40-49.
Most patents in the U.S. are filed by workers in their 40s, and the managers best able to adapt to new technologies are neither too young nor too old. Subsequent research showed that this relationship holds across countries.
U.S. productivity began to slow to a crawl as young and inexperienced baby boomers flooded the workforce. Between 1965 and 1981, the share of Americans aged 40-49 collapsed. The growth rate of underlying productivity followed shortly thereafter. By 2003, however, those same boomers had matured into their most productive decade, dramatically boosting the share of workers in their 40s by nearly 10 percentage points. Feyrer predicted (correctly) that U.S. productivity growth would slow after that as the boomers aged. Since 2005, the number of Americans aged 40-49 has shrunk more than 10%.
The good news is that the millennials will soon come to the rescue. Most of them are now in their early 30s, but this cohort will soon reach their most productive years in the next two decades. According to the latest projections from the United Nations, the number of Americans aged 40-49 will hit bottom in 2019 before rising by more than 20% by 2039.
