It is the population of an economy that provides the supply of labor and the demand for goods. If the population is declining, you can make a safe bet that the economy isn’t doing well. 

Many Alaskan’s have probably heard by now that Alaska’s population declined in 2017. If you haven’t, it’s true. Here are the population numbers going back to World War II:

It’s subtle, but it’s there. Alaska’s population fell by about 2,700 people in 2017. It’s not nearly as noticeable as the post-pipeline-construction crash in 1977 or the 1980’s recession, but there is a story here. If you want the original data, you can find it here.

Breaking Down the Data

Let’s begin by separating out the population into 3 groups: Children (0-17), Potential Labor Force (18-64), and Retirement-Age Adults (65+). Doing this will allow us to get a little more insight into what is going on in the economy.

Potential Labor Force

The population of working age adults ramped up quickly in the 1970’s and 1980’s (with the exception of the economic recession in 1986-1988). This was largely attributable to oil field and pipeline construction workers moving to Alaska to participate in the oil boom. That boom ended in 1986, and many workers migrated the other direction.

Natural Growth

The growth in the labor force since about 1995 has not been due to workers moving to Alaska. Rather, it is a consequence of the population that was attracted in the decades before. The oil boom brought people in their 20’s and 30’s to the state. That is the prime age for having children. By the mid-1990’s, these children were becoming adults.

The oil boom did not attract a lot of people in their 50’s and 60’s. So there were not a lot of workers entering retirement age 20 years later. As the children entered the labor force from below, there were not retirees falling off the other end. Hence, the labor force grew. 

By 2010, those people that were in their 30’s when they moved to Alaska in 1980 were now in their 60’s. Since then, the number of new adults and the number of new retirees has evened out. So, the labor force stopped growing from natural causes. Here’s the data:

Net Migration

The other factor was migration. Every year, some working age people leave for college, or for a new job, or to be closer to family. Although the data isn’t directly available, I fit the data as best as possible to parse out these people and get a feel for the number of working age people who are coming and going. Here’s what I found:

Alaska was a destination for workers in the early 1980’s, followed by a correction at the end of the decade. Then there was a small bounce in the early 1990’s. Starting in the mid-1990’s, the number of working age Alaskans leaving the state was about equal to those moving in (the notable exception being 2009 when Alaska was not suffering from the global recession as much as the lower 48 states were).

Since 2012, more working age people have left the state than have moved in. And there is an age component to who is leaving. The data show that people in their 20’s are far more likely to move. People in their 30’s and 40’s have a lower rate of migration. And people in their 50’s tend to be more willing to leave the state. 

Net Effect

Combined, these two factors (increasing retirement and out-migration) have led to a decrease in the labor pool since 2012. In other words, this isn’t a repeat of the 1980’s recession. It’s a fundamental change in the underlying reality of our population base.

However, The net migration is not as severe as in previous recessions. In fact, if the number of retirements had not increased, we might not have noticed it. However, it is troubling. Without replacement of the retirees, our economy will shrink. If this out-migration is a trend that continues, we should be concerned.

Labor Force Participation

Since we are talking about the working age population, this is a good time to address the issue of labor force participation. I often hear people say that “half of Alaskans don’t work”. Let’s dissect that claim a little bit.

First, we don’t expect 2 year-old children to have jobs. Nor to we expect 90 year-old people to go to work every day. So, we need to separate out the working age people from those that we don’t expect to work. For simplicity, I’ve set that range at 18-64 years of age. As you can see in the first graph of this section, the population of people who are of working age is far less than the 737,080 people who currently live in the state. Here’s the current breakdown:

So, the question of interest should really be this: “how many people of working age are participating in the labor force?”

Well, that answer isn’t as clear as we wish it was, but I can give you an idea. About 347,000 of those people (technically, some of those people are under 18 or over 64, and some of those employees are not Alaskans, but we are going to have to live with this approximation) currently have jobs in which their employer pays unemployment insurance. That accounts for a little over 70% of the potential labor force. That leaves about 118,000 people of working age without a wage or salary.

We know that about 25,000 people without jobs say they are looking for one (5% of the potential labor force). We also know that the Bureau of Labor Statistics estimates around 95,000 people (20% of the potential labor force) in Alaska are self-employed. However, its hard to say if these people are of working age or retirement age, and its hard to say if they are actually making a living at what they are doing.

We do know that the BLS tries to parse out people who have jobs and also work a side-hustle. This number is supposed to be people who only receive business income. To try to corroborate this number, I pulled down the number of business licenses in Alaska from the Department of Commerce. They list about 75,000 business licenses.

All told, even with all the uncertainty in the numbers, we can estimate that 20,000 to 60,000 working age Alaskans are either in college, in prison, disabled, work in ways that these numbers don’t capture, are homeless, or are choosing not to work.

Population of Children

In the years leading up to 1993, we see a rapid growth of the child population. This is partly due to parents moving to Alaska with their children, and partly due to higher average birth rate at the time. These are mostly the children of the Baby Boomers that moved to Alaska during the oil boom.

After about 1993, the child population stayed just about level. Another way to say that is that the number of births was more or less equal to the number of 17 year-olds becoming adults. This is actually a little more interesting than it sounds. Even with more adults, the number of births has stayed level. When I dug into the data a little deeper, it looks like this is mostly attributable to a lower level of teen pregnancy.

Since the mid-1990’s, there have been about 190,000 children in Alaska.  And the numbers are pretty well spread out. Each year, about 10,000 children were born and about 10,000 teenagers became adults. Those new adults are additions to the potential labor force.

It’s also worth noting that I found migration is much lower in children the rest of the population. And the chances of a child moving out of Alaska decrease with age. Combining this finding with the tendencies of working age adult migration discussed before, I am pretty sure this implies the intuitive fact that parents are more likely to stay in Alaska if they have kids in school. And the older the kid gets, the harder it is to leave.

Retirement Age Population

The population of Alaskans that are reaching retirement age has been rapidly increasing for the last decade. These are the baby boomers that came to Alaska 40 years ago and are now ready to retire, along with their parents that are living longer lives.

The increasing population of retirees has been masking a lack of population growth in the rest of the population for at least 5 years. And as it has grown, the economy has adjusted. Most notably, they are increasing the demand for healthcare. Those that do not have sufficient retirement are increasing demand for assistance from the government and their children.

This trend was beneficial during the recent recession. Retirees left the workforce, allowing it to decline without significant layoffs. And their savings acted as a cushion, allowing housing prices to stay put and demand for goods and services to be maintained.

Loss of Retirees

I don’t have the raw data of whom exactly leaves the state each year. But, I did find enough data to piece together a reasonable picture. Here’s what I found:

I’m not confident that the 2008-2009 numbers are correct and not just a consequence of fitting the data. But the general story is there. More retirement age people leave the state than move in. And, as the population ages, more people are dying here.

As we saw above, the number of people turning 65 is greater than the number of people moving away or passing on. So, the net population of retirement age people is continuing to grow. In 1980, the share of retirement age people was just 2%. In 2017, it is now over 11%. That is a trend we expect to continue and the economy will need to continue to adjust.

Data Visualization

Putting this all together, a plot of the population by age is a helpful visualization. Here are three population plots at 20 year intervals that should help solidify the points made above.

Projections

Looking at the plot for 2017 above, it is clear what has been going on for the last decade. But perhaps even more clear is what is on the horizon. The large population bubble is just now entering the next phase of life. As it continues, the repercussions on the economy are meaningful. 

Retirement Age Population

Here is what happens to the retirement age population over time in our model:

As the number of retirement age people will double again over the next 12 years, there are some changes in the economy we can anticipate. We should expect to see the demand for healthcare continue to increase and a larger call on pension plans. We should expect the demand for nurses and doctors to increase and the rest of the economy to adjust around these changes.  

There will be more people moving away, into nursing home, or passing away. As that happens, more homes will be put up for sale, leading to a decrease in housing values and a reduction in the construction sector.

It’s also worth noting that there is a second wave of retirements coming later down the road. Perhaps the children of today will be better prepared for it.

Children

We expect school age children and daycare providers to see a temporary decrease in demand, until the population adjusts to changing birthing patterns. Here’s what the child population looks like in our model:

Labor Force

The labor force appears to be on the verge of shrinking over the next 10 years due to retirements, unless migration patterns change.

This is happening as we expect to see an increased call on the labor force. Retirees will continue to consume products, creating a new injection of cash from their retirement accounts. Demand for healthcare will continue to increase. The oil and mining sectors appear poised to need more workers over the next decade.

This is going to force the economy to either attract new people, to keep people working longer, or to adjust down to a smaller labor force. Our model does show this as a temporary issue. After 2030, the next generation of children should stabilize the economy.