The U.S. economy is nearing an inflection point with declines in the labor force likely to slow already sluggish employment growth even further in coming years, according to economist Tatiana Bailey.
The slowdown is a result of demographic trends – the U.S. population is aging, with the percentage of those 65 years or older more than doubling from 8.1% of the population in 1950 to 17.3% of the population in 2022. That has resulted in slower population growth both nationwide and in Colorado, which had been adding residents at twice the national rate but now is growing only slightly above the U.S. average.
Bailey made her comments during her year-end update presentation Nov. 5 at the Garden of the Gods Resort and Club that also featured an update from Mark Ferrandino, director of the Colorado Office of State Planning and Budgeting.
Those trends mean fewer working adults supporting each retiree by making required payments into both Social Security and Medicare programs, which could make it difficult to keep benefits and coverage at current levels. To prevent the ratio of working adults to retirees from declining even more, Bailey said the number of available workers must grow each year by 4.6 million people.
That growth can’t happen without immigrants, a population that now makes up 19% of the U.S. labor force despite being just 15% of the overall population, Bailey said. However, deportations of undocumented immigrants and other restrictions on immigration have resulted in the number of foreign-born workers declining by more than 1 million this year, leading to a reduction in the overall number of available U.S. workers, she said.
“Some degree of immigration is necessary [for the needed labor-force growth], so a safe and orderly process for immigrants who will work is needed to solve this structural headwind,” Bailey said. “Eleven thousand people a day are retiring, so we need to increase the labor force to pay for those future [Social Security and Medicare] outlays,” which now make up 40% of federal spending.
Bailey warned that businesses are reluctant to invest and expand due to economic uncertainty and higher tariffs imposed by the Trump administration, which she said are “antithetical” to the U.S. free-market system. While consumer spending is increasing, much of the gains are coming from high-income households, which she said could slow if the U.S. stock market begins declining.
U.S. economic growth has been slowing since early 2024 and Bailey expects that to continue into next year, with economic output expected to rise between 1% and 2%. She estimated the government shutdown in October and November cost the U.S. economy about $15 billion in economic activity per week, or more than $100 billion total, reducing economic growth in the final quarter of 2025.
These challenges come as employment growth is slowing nationwide, in Colorado and in El Paso County, and Bailey forecasts that both the county and state unemployment rates will increase next year to 4.8% and 5%, respectively. Much of the slowdown in local and statewide job growth results from demographic shifts, with Colorado and El Paso County “catching up” to nationwide trends, she said.
Those shifts include fewer younger workers entering the labor market, which is making a shortage of qualified workers even worse, Bailey said. Fewer high-school seniors are continuing their education due to high tuition costs and reluctance to accumulate debt to pay for college classes. She said the state should invest in technical training to help build the labor force the local and state economies need.
Bailey said the high cost of healthcare – which now makes up 18% of all economic activity – is squeezing out needed investments in worker training and other initiatives that could boost economic growth.