The powerful social forces that have flooded the global economy with abundant labor for the past four decades years are reversing suddenly as an aging worker crisis sets in, “spelling the end of the deflationary super-cycle and the era of zero interest rates,” warns Ambrose Evans-Pritchard, international business editor of The London Telegraph.
“As cheap labor dries up and savings fall, real interest rates will climb from sub-zero levels back to their historic norm of 2.75 percent to 3 percent, or even higher,” Evans-Pritchard writes.
“The implications are ominous for long-term US Treasurys, Gilts or Bunds. The whole structure of the global bond market is a based on false anthropology,” he said.
"We are at a sharp inflexion point," he quotes Charles Goodhart, a professor at the London School of Economics and a former top official at the Bank of England.
Goodhart says the coming era of labor scarcity will shift the balance of power from employers to workers, pushing up wages.
The twin effects of plummeting birth rates and longer life spans from 1970 onwards led to a demographic "sweet spot," a one-time episode that temporarily distorted labor economics.
Companies “seized on the world's reserve army of cheap leader,” Evans-Pritchard wrote.
As a result, US corporate profits after tax are now 10 percent of GDP, twice their historic average and a post-war high.
“Cheap labor held down global costs and prices. Lulled by low consumer price inflation, central banks let rip with loose money ,,, leading to even lower real interest rates and asset bubbles. The rich got richer,” Evans-Pritchard wrote.
"It is what led to 25 years of wage stagnation," said Goodhart.
However as baby boomers retire and people live much longer, "we are on the cusp of a complete reversal. Labor will be in increasingly short supply. Companies have been making pots of money but life isn't going to be so cozy for them anymore," said Goodhart.
“The world has never faced an aging epidemic before so we are in uncharted waters,” he said, warning that the results could “shatter all our economic assumptions,” Evans-Pritchard wrote.
For example, the state of Maine is headed for a significant labor shortage.
In 2012, the number of Maine residents between the ages of 45 and 64 totaled roughly 411,000. Most members of that group are expected to exit the labor force by 2032, the Portland Press Herald
At the same time, there were 302,000 residents under age 20, most of whom are expected to enter the workforce by 2032. Even if none of those young people left the state, the aging of Maine residents would generate a shortfall of up to 109,000 workers – a significant problem in a state where the workforce totaled about 705,200 in July, according to the Maine Department of Labor.
“A lot of people are going to be aging out … and there’s not going to be enough young people to replace them,” said Edward McKersie, founder and president of staffing and recruiting firm Pro Search Inc. in Portland.
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