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🟪 Friday Charts

Demographics are destiny

Byron Gilliam
May 29, 2026

Friday charts: demographics are destiny

In October 1347, Genoese ships returning from the Black Sea region brought plague-bearing rats to Messina, Sicily. Just five years later, the Black Death had reduced the population of Europe by an estimated 40%.

As unfathomable as that is, the news wasn’t all bad.

Between 1348 and 1350, for example, real wages for skilled workers in Florence — one of the hardest-hit cities — rose an estimated 27%. For unskilled workers, they rose 87%.

Across Western Europe, wages continued to rise over the next hundred years. Land prices and interest rates fell. Serfdom ended. Inequality was dramatically lower.

It was exactly what intergalactic economist Thanos would have predicted: a massive population shock empowered workers to demand a much larger slice of the economic pie.

This posed such a threat to the established order that, in England, the Crown and Parliament enacted laws designed to cap wages at pre-plague levels.

A maximum wage, so to speak.

It’s hard to imagine a government intervening to keep wages down. But maybe not for much longer.

“Projections to 2040 show that we are on the verge of a radical reshaping of labor markets in which new workers will be in extremely short supply,” Steven Ruggles writes in a new paper.

The professor of history and population studies supports that projection with a recent historical precedent. The extraordinary leverage US workers enjoyed in the 1950s, he explains, was primarily a function of the dearth of babies in the 1930s: “The ‘lucky few’ Depression-era babies were in high demand after the war, so they received high wages.”

They also married early and had many more babies than their parents did — which eventually swung the labor-market pendulum back in favor of employers.

“The labor force expanded rapidly after 1960,” Ruggles writes, “reaching a net increase of almost 25 million workers in the 1970s. About half of this surge can be ascribed to the large cohorts of the baby boom, and about half to the increasing participation of women.”

After 2000, the supply of labor expanded even further thanks primarily to a surge of immigration.

All this, Ruggles says, is why real wages stagnated: “It was difficult for the economy to absorb all the new workers, and wages for young people declined sharply after peaking in 1973.”

Now, however, the demographic drivers are being thrown in reverse.

Baby boomers began retiring in large numbers during the 2010s. Immigration slowed at the same time (and is now near zero). People started having fewer kids (although not because of economic hardship this time).

The result, Ruggles says, is that the labor force will soon be shrinking.

He expects that to fundamentally transform the labor market: “There is likely to be an unprecedented shortfall of new workers, creating strong upward pressure on wages.”

Ruggles believes Americans born in the 2020s will earn significantly more than their parents did. Labor-force participation should rise as higher wages pull more workers into the workforce. People will retire later because they can earn for longer. Unions will have more leverage in negotiations with employers. Inequality will decline — “generational inequality,” especially.

Sounds pretty good!

It’ll be like the Black Death, but no one has to die. Or Avengers: Infinity War, but Thanos doesn’t have to snap his fingers.

The only real downside might be for investors, because higher wages will mean lower returns on capital for many of the businesses we invest in.

But for a century of higher wages? That would be a small price to pay.

Let’s check the charts.

A seller’s job market:

Ruggles estimates that in 2040, the labor market will be almost half as competitive as it is now.

Baby bust:

In 1960, US women had an average of 3.7 children each. In 2024, it was 1.6.

Always take the under:

The FT’s John Burn-Murdoch notes that birth rates almost always fall faster than anyone expects.

Jevon’s Paradox?

Torston Slok thinks the falling cost of artificial intelligence is creating disproportionate demand for human intelligence: “Many firms are hiring AI implementation experts, and the data center buildout is putting upward pressure on salaries for AI experts and on prices of semiconductors, equipment and energy. The bottom line is that the AI spending boom is stoking both employment and inflation.”

Don’t blame AI:

Burn-Murdoch also notes that the decline in entry-level employment is more correlated with the advent of working from home than the release of ChatGPT.

Compute crunch?

Researchers at Epoch.ai forecast that artificial intelligence, as measured by the supply of tokens, will increase at a rate of 3.4x per year over the next five years. As blazingly fast as that is, they expect demand to grow even faster: “a compute crunch is likely near.”

Hogging the houses:

Demographics explain the unaffordable cost of housing, too. “Empty-nest baby boomers own more large homes than millennials with kids in every major U.S. metro,” Redfin says. But they won’t need them forever. Population trends suggest this generation’s housing shortage will be next generation’s surplus.

Real wages are now falling:

A three-year winning streak for labor may be coming to an end with CPI now above wage growth.

A decades-long run for capital:

After-tax margins for US corporations have risen from 4% in 2000 to 18% now. I’m guessing most of that is due to modern tech firms having higher-margin business models than old economy firms. But the ample supply of labor helped, too.

Valuation:

As measured by Robert Shiller’s index, investors are paying near all-time high valuations for US stocks. If demographics force margins down, they’ll likely pay less.

Glory days: