The din of populist mewling over the past decade, particularly in ‘welfare states’, has obscured echoes of a singular fear: a fear of destitution as hopes of achieving, or preserving, prosperity fade. The bounty and abundance enjoyed over several generations has perhaps left these peoples incapable of facing hardship with dignity and grace. Even so, it is curious that a sense of entitlement inculcated over a period of extraordinary growth and stability has only grown more obstinate in the face of stiffening competition. More specifically, in this article, I study the incentives and entitlements that have sapped the competitive spirit vital for growing economies.
A period of relative calm following the upheavals of the first half of the 20th century gave birth to an economic boom in developed nations. It was powered by technological progress and a somewhat unrestrained entrepreneurial spirit. An individual with an idea and an iron will could reasonably hope to get a chance to prove his worth and potentially build a lasting empire. The so-called ‘invisible hand of the market’ allowed many individuals to do exactly that and this competitive energy fueled the engines of these nations’ economic growth.
The post-war trade imbalances that left certain countries in commanding positions allowed their businesses unfettered access across the world. While this certainly proved useful in achieving foreign policy goals, the enonomic activity that ushered in prosperity at home was perhaps even more important. As businesses grew, so did their need for skilled workers, accountants, lawyers, and managers; not to mention the secondary and tertiary businesses that grew symbiotically.
The Age of Plenty
While this article began by talking about developed ‘welfare states’ as a whole, each nation within that group had its own unique challenges and advantages. Let’s consider data from the United States for consistency.
From 1940 to 2000, the population of the US grew by more than 10% every decade except for the period from 1980 through 1990 [1]. Population growth has been falling since 2000 with 2010-2020 seeing the lowest population growth since 1930-1940.
This growth in human resources ran in parallel with that of the Gross Domestic Product (GDP). The GDP, while an imperfect metric, is commonly considered to be an general indicator of a country’s economic health. And the Real GDP data since 1950 (based on 2017 chained dollars) has grown significantly every decade, despite a relative slowdown after 2000 [2].
Positive macroeconomic trends are of little value if they don’t translate to individual prosperity. Have the American people benefited from their country’s commanding political and economic position in the world? It would appear that they indeed have, if ‘per capita real disposable personal income growth’ is used as the metric. Based on 2017 chained dollars, per capita disposable income has grown by more than 20% every decade since 1960 except for the period from 2000 through 2010 [3].
This information is summarized in Table 1.
| Year | Population Growth (%) | Real GDP (trillions) | Real GDP Growth (%) | Real Disposable Personal Income | Real Disposable Income Growth (%) |
|---|---|---|---|---|---|
| 1950 | 14.5 | 2.46 | 72 | ||
| 1960 | 18.5 | 3.50 | 42.27 | 13,250 | |
| 1970 | 13.3 | 5.32 | 52 | 18,900 | 42.64 |
| 1980 | 11.5 | 7.26 | 36.46 | 23,108 | 22.26 |
| 1990 | 9.8 | 10.01 | 37.87 | 28,697 | 24.19 |
| 2000 | 13.2 | 14.10 | 40.86 | 35,821 | 24.82 |
| 2010 | 9.7 | 16.79 | 19.08 | 40,771 | 13.81 |
| 2020 | 7.4 | 20.27 | 20.72 | 49,362 | 21.07 |
The Entrepreneurial Engines of Growth
Study of GDP and income are meaningless without considering the people, corporations included, that power growth. Let’s consider some numbers that indicate their participation in the economy during these years.
Table 2 shows the number of firms in the US by employee count. That country has witnessed a slowing growth in the number of small firms. That the figures for firms with less than 20 employees already include incorporated independent contractors and firms with no employees make it even more sobering. In contrast, the number of larger firms (those with 500 employees or more) has grown significantly faster.
| Year | <20 employees | Growth (%) | 20-499 employees | Growth (%) | 500+ employees | Growth (%) |
|---|---|---|---|---|---|---|
| 1990 | 4,535,575 | 524,197 | 14,023 | |||
| 2000 | 5,035,029 | 11.01 | 600,362 | 14.53 | 17,153 | 22.32 |
| 2010 | 5,160,404 | 2.49 | 556,898 | -7.24 | 17,236 | 0.48 |
| 2020 | 5,471,736 | 6.03 | 647,921 | 16.34 | 20,955 | 21.58 |
Table 3 shows the number of people employed by different sized firms and establishments. Echoing the numbers in the previous table, it appears that more and more workers are opting to work at large companies.
| Year | <20 employees | Growth (%) | 20-499 employees | Growth (%) | 500+ employees | Growth (%) |
|---|---|---|---|---|---|---|
| 1990 | 18,911,906 | 31,254,891 | 43,302,478 | |||
| 2000 | 20,587,385 | 8.86 | 36,536,659 | 16.90 | 56,940,932 | 31.50 |
| 2010 | 20,573,768 | -0.06 | 34,422,912 | -5.79 | 56,973,415 | 0.06 |
| 2020 | 21,241,941 | 3.25 | 40,367,044 | 17.27 | 72,554,364 | 27.35 |
Tables 2 and 3 are referencing data from the U.S. Census Bureau [4].
The two tables above suggest that large firms are consolidating their hold on the labor market at the expense of smaller firms. Whether by choice or by necessity, talent in the US is gravitating towards large tent-pole companies that have hitherto proven themselves to be somewhat resilient to economic downturns. Perhaps this veneer of relative stability makes them the employers of choice for new entrants to the country’s labor pool.
Locked Potential
With that being said, examining the age data of the civilian labor force over the past two decades reveals some startling trends. Table 4 shows that while the median age is quite high for a nation witnessing close to double digit population growth, it appears to have remained relatively stable since 2003 [5].
| Year | Median Age |
|---|---|
| 2003 | 40.3 |
| 2013 | 42.0 |
| 2023 | 41.6 |
However, as table 5 shows, it is worth noting that in the interval when the labor force participation of people younger than 55 decreased, that of the older cohort saw significant growth [6].
| Interval | Age 16-24 | Age 25-54 | Age 55 and up |
|---|---|---|---|
| 2003-2013 | -3.2% | -1.5% | 50.3% |
| 2013-2023 | 3.5% | 5.7% | 15.7% |
The Social Security Administration acknowledges this phenomenon by also noting that the labor force participation rate (LFPR) for the population aged 62 and above has been steadily increasing since the mid 1990s [7]. Their report contrasts this against the steady fall in the LFPR of this cohort for four decades after World War 2 which was caused by the availability of Social Security benefits, employer-provided pension plans, and Medicare. Increased life expectancy means that more resources are required to maintain a standard of living after retirement and these three sources of post retirement benefits are proving inadequate.
As a result, it seems that more and more aged workers are opting to hang on to their jobs until they can retire and claim their pensions. As the full retirement age goes up, it would be reasonable to expect that the labor force proportion of this cohort will also increase. It is probable that the increasing consolidation of larger firms on the labor pool in concurrence with a slower growth of small and medium sized businesses suggests that experienced workers are opting to remain employees rather than to open businesses of their own.
It would be unwise to expect older and experienced workers, who have achieved commanding positions in their respective companies and industries, to risk their savings, credit, and future income by opening businesses. However, it is worth noting that older cohorts make up a significant proportion of jobs at the working level. Table 6 shows the labor force share for non-management positions by age group [6]. It is remarkable that, in the last decade, the proportion of the oldest age group has increased the most while that of those aged 25-54 has decreased.
| Year | Age 16-24 | Age 25-54 | Age 55 and up |
|---|---|---|---|
| 2013 | 13.71% | 65.25% | 21.04% |
| 2023 | 14.03% | 63.49% | 22.48% |
The situation is more grim in certain industries. In 2023, the median age of workers in durable goods manufacturing industries was one of the highest at 44.4 years [8]. The proportion of workers aged 55 and older in these industries was 26.06% in the same year.
It is worth wondering about the economic potential locked away in that old cohort that is languishing away working for other people. There is a wealth of skilled experience tied up in salaried work that could power the next generation of entrepreneurial growth. Perhaps the entitlements due from the stability of those jobs outweigh the incentives to strike out and build businesses of their own.
Disgruntlement
It is admittedly not easy to be an entrepreneur. The risks are daunting and the rewards uncertain. A lifetime of poor personal decisions or the burden of responsibilities can rob even the most gifted individual of the courage to leave his job to build something for himself. A mindset such as this while under the influence of lowered public enthusiasm about the state of the economy can easily lead to disgruntlement about the seemingly worsening state of affairs. The security from being told that everything will be alright and the purpose gifted from being told what to do can be alluring. It is, therefore, not surprising that political campaigns built on incentivizing entrepreneurship lose to those promising protectionism and the elimination of competition.
This is why I respect those with the courage to be entrepreneurs in this environment. I offer pro bono consulting to solo entrepreneurs regardless of their age. To learn more or to contact me, please visit the Contact page.
References
Note: Data from the sources below were accessed during the week of 9 December 2024.
[1] U.S. Census Bureau, “Historical Population Change Data (1910-2020)”.
[2] U.S. Bureau of Economic Analysis, “Table 1.1.6. Real Gross Domestic Product, Chained Dollars”.
[3] U.S. Bureau of Economic Analysis, “Real Disposable Personal Income: Per Capita [A229RX0]”, retrieved from FRED, Federal Reserve Bank of St. Louis.
[4] U.S. Census Bureau, “Statistics of U.S. Businesses Historical Data”.
[5] U.S. Bureau of Labor Statistics, “Table 3.4 Median age of the labor force, by sex, race, and ethnicity, 2003, 2013, 2023, and projected 2033”.
[6] U.S. Bureau of Labor Statistics, “11b. Employed persons by detailed occupation and age, Labor Force Statistics from the Current Population Survey”.
[7] Social Security Administration, “The Increasing Labor Force Participation of Older Workers and its Effect on the Income of the Aged”.
[8] U.S. Bureau of Labor Statistics, “18b. Employed persons by detailed industry and age, Labor Force Statistics from the Current Population Survey”.