Structural Labor Market Shifts: The Aging Workforce and the Struggle for Young Entrants

The American workforce is being pulled in two opposing directions by powerful demographic forces. On one side, a historic surge in the older population is reshaping the labor supply. On the other, a cohort of young entrants is struggling to find their footing. This dual dynamic creates a structural tension that policymakers and businesses must navigate.

The scale of the aging population is staggering. The number of Americans aged 65 and older has grown by 457 percent since 1948, reaching 59.7 million in 2024. This growth far outpaces other age groups, fundamentally altering the economic landscape. It is not just a demographic shift in numbers; it is a transformation in who is working. The share of the labor force composed of workers aged 55 and older has more than doubled, rising from 10% in 1994 to 24% in 2022. This trend is most pronounced in certain industries and regions, creating pockets of a workforce that is older and more experienced, but also potentially less flexible.

This aging supply contrasts sharply with the demand side, where young workers face a difficult market. Unemployment among those aged 16 to 24 hit 10.5% in August 2025, the highest level in nearly four years. The strain is particularly acute for recent college graduates, whose unemployment rate has consistently outpaced the broader workforce. In June 2025, the rate for this group stood at 4.8%, a notable reversal from the pre-pandemic norm where degree-holders typically fared better. This divergence points to a labor market where entry-level opportunities are scarce, and the traditional career ladder appears to be under pressure.

The result is a dual labor market in motion. An expanding pool of older workers is maintaining labor force participation, while a younger cohort finds itself squeezed out. This setup creates a fundamental mismatch: the economy needs to absorb a large number of new entrants, but the conditions for their entry are tightening. The structural shift is clear, and its implications for productivity, innovation, and long-term growth are just beginning to unfold.

Drivers of the Divergence: Demographics, Technology, and Policy

The dual labor market we've identified is not a random fluctuation but the result of powerful, interconnected forces. At its core is a demographic engine that is reshaping the supply side, while technological change and a softening market are converging to pressure the demand side, particularly for young entrants.

The primary driver is population aging. The share of Americans over 65, a demographic with significantly lower labor force participation, is rising rapidly. It was 12.4% in 2007, 17.9% in 2024, and will hit 21.2% by 2035. This trend is a fundamental headwind to labor force growth, as the CBO projects it will continue to pull down the overall growth rate for decades. In essence, the economy is being pulled into a slower-growth trajectory simply because the pool of potential workers is shrinking relative to the total population. This demographic shift is the bedrock upon which the current labor market structure is built.

Technology, specifically artificial intelligence, is adding a layer of complexity, particularly for younger workers. While the aggregate impact on unemployment remains slight, a clear correlation is emerging between AI exposure and employment declines for the youngest cohort. A recent study found that workers aged 22 to 25 in the most AI-exposed occupations have experienced a 13 percent decline in employment since 2022. The mechanism appears to be a disruption in the traditional entry path: fewer young people are transitioning directly from out of the workforce into employment in these roles. This suggests AI is not yet causing mass layoffs but is altering the landscape for new entrants, potentially making it harder for them to gain a foothold in certain high-growth sectors.

This technological pressure is unfolding against a backdrop of a labor market that has softened since its peak. Since April 2023, the market has shown clear signs of strain. Nationally, job openings have dropped by 23.2% (2.3 million), quits are down, and layoffs are up. This softening disproportionately affects young adults. The data shows that their unemployment rates are highly sensitive to changes in job openings, and they were already more than double the national average at the market's peak. As openings vanish, this vulnerable group is being hit hardest, amplifying the structural mismatch.

The bottom line is a convergence of forces. Demographics are structurally reducing the labor supply, creating a bottleneck. AI is selectively disrupting the entry points for young workers, while a broader market slowdown is drying up the very opportunities they need. These are not isolated trends but a reinforcing cycle that demands a policy response focused on both supply-side constraints and targeted support for the next generation of workers.

Financial and Economic Implications

The labor market's structural shifts are not just a social or policy issue; they are a direct driver of financial performance and macroeconomic growth. The interplay between an aging workforce and constrained entry points is already translating into suppressed wage pressures, a slower growth engine for the economy, and a narrowing path for the next generation of workers.

The most immediate financial consequence is a dampening of wage growth, driven by what economists call a "reserve army of labor." A growing pool of older workers is staying in or re-entering the workforce not by choice, but out of financial necessity. Almost half of older workers are approaching retirement without enough retirement income to maintain their standard of living. This large, financially vulnerable cohort acts as a buffer for employers. With a ready supply of workers willing to take jobs at lower pay or with fewer benefits, companies face less pressure to raise wages or improve conditions to attract talent. This reserve army effect weakens the bargaining power of all workers, contributing to the broader stagnation in wage growth that has characterized the post-pandemic economy.

This dynamic directly constrains the economy's growth potential. The fundamental equation for GDP is straightforward: GDP is the product of the number of hours worked multiplied by productivity. As population aging slows the growth of the labor force, the "hours worked" component is being pulled down. The Congressional Budget Office projects that demographic trends alone will continue to pull down labor force growth for decades. This means that even if productivity improves, the overall growth rate of GDP will be structurally lower. Policymakers who wish to avoid a permanent slowdown in economic expansion have a narrow path: they must rely on immigration to supplement the shrinking domestic labor supply, as other policies to boost participation will not reverse the demographic headwind.

Perhaps the clearest signal of a tightening entry point for young workers is in the data on job postings. While overall hiring demand has softened, the decline is not evenly distributed. Between August 2024 and August 2025, postings for junior job titles dropped by 7%, while senior-level roles saw a modest 4% increase. This divergence suggests companies are not simply cutting back on hiring; they are shifting the composition of their needs. The narrowing entry point for new graduates and young adults is a direct result of this structural change, where the demand for experience is outpacing the supply of new entrants. For the economy, this is a long-term vulnerability. A workforce that cannot efficiently absorb its newest members risks underutilizing talent, stifling innovation, and ultimately capping productivity gains.

The bottom line is a financial and economic setup where growth is being sapped from both ends. The reserve army of older workers suppresses wage growth and labor costs, while a shrinking pool of junior roles hinders the next generation's career progression. Together, these forces create a bottleneck that will likely keep GDP growth below its historical trend for the foreseeable future.

Catalysts and Risks: What to Watch

The structural thesis laid out here is clear, but its trajectory hinges on a few critical, forward-looking signals. Investors and policymakers must monitor these catalysts and risks to gauge whether the current labor market bottleneck is a temporary softening or a permanent feature of the economic landscape.

First, the youth labor market remains the most sensitive barometer. The recent surge in unemployment for those aged 16 to 24 to 10.5% in August 2025 is a stark warning. The key question is whether this reflects a cyclical dip or a deeper structural shift. Watch for sustained high unemployment among recent college graduates, whose rate has already climbed to 4.8% in June 2025, a notable break from the pre-pandemic norm. A recovery in job postings for entry-level roles on platforms like Handshake, which saw a 15% year-over-year decline for the class of 2025, would signal easing pressure. Conversely, further deterioration would confirm the thesis that the traditional career ladder is being disrupted.

Second, the supply side is not static. The "reserve army" of older workers, driven by inadequate retirement savings, is a key pillar of the current low-wage equilibrium. Any policy response to the "retirement crisis" could alter this dynamic. If Congress or state governments implement measures to bolster retirement security-whether through expanded savings incentives, pension reforms, or targeted relief-older workers might exit the labor force sooner. This would tighten supply and potentially re-ignite wage pressures. Conversely, a failure to act would cement the current setup, maintaining the buffer that suppresses labor costs.

Finally, the evolution of AI's impact is the largest uncertainty. The data shows a clear correlation: workers aged 22 to 25 in the most AI-exposed occupations have experienced a 13 percent decline in employment since 2022. This is not mass layoffs but a disruption in the entry path. The critical risk is that this trend accelerates, permanently altering the composition of new jobs. Watch for whether AI's effect remains confined to specific sectors or spreads more broadly, and whether companies begin to hire more experienced workers to manage new technologies, further crowding out young entrants. This would validate the most disruptive scenario in the structural thesis.

The bottom line is that the current labor market is a pressure cooker of demographic, technological, and policy forces. The signals to watch are the ones that will reveal whether these pressures are building toward a breaking point or settling into a new, less dynamic equilibrium.