Shrinking and aging workforces challenge economic sustainability. — Michael Lokshin, Brookings, December 2024
Shrinking and aging workforces challenge economic sustainability.
The U.S. labor force has added just 34,000 workers from February through August 2025, compared with more than 1.1 million over the same period in 2024, according to the U.S. Bureau of Labor Statistics (BLS). We use February as the starting point because major policy changes under the Trump administration, including immigration enforcement, began after the January inauguration. This is one of the weakest February-to-August increases in two decades outside of a recession, underscoring a structural labor supply problem.
For the first time in over a half century, the U.S. is experiencing negative net migration. Pew Research Center data shows the foreign-born population fell by 1.5 million between January and June 2025, as deportations and voluntary departures reduced the workforce.As immigration falls to zero or turns negative, it collides with another trend: the shrinking workforce, driven by low birth rates and baby boomer retirements.
Without new workers, the supply of labor stagnates, and the jobs breakeven point – the number of monthly payroll gains required to hold the unemployment rate steady – falls sharply.
The U.S. is now confronting the same demographic headwinds long faced by Japan and Europe – a reminder that labor supply shocks caused by demographics are not easily reversed.
Previously, policymakers and investors assumed roughly 150,000 jobs per month was the breakeven amount required to keep the unemployment rate from rising, but conditions have shifted. Research from the Federal Reserve Bank of St. Louis suggests that with weaker immigration flows, breakeven employment growth could be as low as 30,000 to 80,000 jobs per month. By this standard, the recent payroll reports – averaging about 35,000 jobs per month – might be close to equilibrium.
Fed Chair Jerome H. Powell reinforced this point in his September Federal Open Market Committee press conference, noting the labor market might now require only zero to 50,000 new jobs per month to maintain balance. This is a sharp revision from the 150,000-200,000 range cited just months ago, reflecting that the labor force is scarcely expanding. In other words, the labor market might be stabilizing at a new, lower level rather than signaling a collapse as the population dynamic shifts.
This nuance matters now more than ever for monetary policy. This week’s rate cut highlights that the Fed is responding to weak job growth, but it risks overreacting to supply-side constraints. Rate cuts cannot fill the labor supply gap and risk adding inflationary pressure.
Investors and policymakers should recognize that the 2025 labor market is operating under fundamentally different circumstances than just a few years ago. Zero immigration plus aging demographics equals a lower breakeven for jobs. That makes direct comparisons to 2024 or earlier cycles misleading. A barometer long relied upon to judge growth and recession risk – headline job growth – has become less reliable.
Weak payroll gains do not automatically mean weak demand. The Fed must decide whether jobs weakness reflects slowdown or structural supply limits – a choice that will determine whether its cuts stabilize the economy or fuel inflation.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
