More than three years after the start of Covid, U.S. retirees are exiting the workforce at breakneck speed—and leaving a massive hole in the economy along the way.

According to Bloomberg data, the U.S. still has roughly 2 million more retirees than the Fed predicted in its economic modeling.

A 2021 review of that model sought to understand the reasons behind the so-called “Covid retirement boom,” which saw a massive outflow of baby boomers from the workforce during lockdowns.

Miguel Faria-e-Castro, an economic policy adviser with the St. Louis Fed, concluded that boomers stopped working because of “cyclical factors” and “factors specific to the Covid-19 crisis.”

Surely, with the pandemic in the rearview mirror, the gap between actual retirees and the numbers predicted by the Fed would close. That’s what Fed researchers concluded in a 2022 paper titled “The Great Retirement Boom.”

But that’s not quite what happened.

While excess retirees have declined from last year’s peak of 2.8 million, they’ve rebounded from June’s 1.7 million. “While the gap seemed to be closing earlier in the year, it seems to have widened slightly since then,” Faria-e-Castro told Bloomberg.

A sizable share of boomers left the workforce and didn’t look back. Their absence has thrown a wrench in employers' hiring plans as companies continue to report significant skills and labor shortages.

Who will fill the gap?

While it’s impossible to delay boomer retirement forever, excess retirements make it harder for employers to fill vacant positions.

As of September, there were 1.5 job openings for every unemployed person, according to the Labor Department’s JOLTS report. This figure peaked at a ratio of 2 to 1 last year.

Currently, there are roughly 9.6 million job openings and only 6.5 million workers to fill them.

The sheer size of the baby boomer generation and its long history in the workforce make these workers difficult to replace. As The Washington Post reports, Gen X and Gen Z comprise a smaller share of the population than boomers did when they were the same age.

“The labor shortage we're dealing with today is likely to remain this way—and perhaps get even worse,” Jay Denton, chief analytics officer at LaborIQ, told Business Insider.

“The slow-moving demographic tidal wave is finally cresting,” Glassdoor chief economist Aaron Terrazas said of the looming boomer retirement and its impact on the labor force.

It’s not just boomers

Millions of Americans have exited the workforce permanently since the onset of Covid. As the U.S. Chamber of Commerce reports, there are currently 1.5 million fewer workers in the labor force compared to February 2020, just before the pandemic.

The workforce participation rate—which includes the employed and people actively searching for work—has declined to 62.7% from 63.3% pre-Covid.

As the Philadelphia Fed explains, “Low participation is distinct from unemployment—looking for a job but not finding one—which has fallen sharply since the [2008-09] recession.”

As it turns out, workforce participation has been declining for more than two decades. For men in their prime working age, participation levels have been falling for more than half a century.

While it was easy to blame the virus for declining participation, the issue is far more complicated.

A 2014 study by Fed researchers concluded that workforce participation is falling because more workers are discouraged by the economy and labor market.

Others may be “crowded out” due to the intense competition for middle-skill positions and lower-skill jobs, of which there’s an abundance of applicants.

They also accurately predicted what we’re seeing today.

When the researchers concluded their study, “The youngest members of the baby-boom generation [were] still in their early 50s, and thus the effects of population aging will continue to put downward pressure on the participation rate for some time."