De­mo­graphic de­cline poses eco­nomic threat

As fewer work­ers re­place re­tirees, growth may slow, report says

The Buffalo News - - BUSINESS - By Neil Ir­win

For many years, Amer­i­can econ­o­mists have spo­ken of Ja­pan and Western Europe as places where the slow grind of de­mo­graphic change – masses of work­ers reach­ing re­tire­ment age, and smaller gen­er­a­tions re­plac­ing them – has been a ma­jor drag on the econ­omy.

But it is in­creas­ingly out­dated to think of that as a prob­lem for other coun­tries. The deep­est chal­lenge for the U.S. econ­omy may re­ally be about de­mo­graph­ics. And our un­der­stand­ing of the im­pli­ca­tions is only start­ing to catch up.

A new report from the Eco­nomic In­no­va­tion Group, a Wash­ing­ton think tank funded in large part by tech in­vestors and en­trepreneurs, adds rich new de­tail, show­ing that parts of the United States are al­ready grap­pling with Ja­panese­cal­iber de­mo­graphic de­cline – 41 per­cent of U.S. coun­ties, with a com­bined pop­u­la­tion of 38 mil­lion.

At the na­tional level, slower growth in Amer­ica’s work­ing-age pop­u­la­tion is a ma­jor rea­son that main­stream fore­cast­ers now ex­pect the econ­omy to ex­pand around 2 per­cent each year rather than the 3 per­cent com­mon in the sec­ond half of the 20th cen­tury. As a mat­ter of sim­ple arith­metic, lower growth in the num­ber of peo­ple work­ing will al­most cer­tainly mean slower growth in eco­nomic out­put.

But de­mo­graphic change doesn’t hit ev­ery­where equally. Be­sides the in­evitable ef­fect of the ex­tralarge baby boom gen­er­a­tion hit­ting re­tire­ment age and step­ping away from the work­force, de­ci­sions by work­ing-age peo­ple can ac­cen­tu­ate or lessen the ef­fect of that un­der­ly­ing shift.

Many younger work­ers move to bustling ur­ban cen­ters on the coasts, leav­ing smaller cities and ru­ral ar­eas be­hind. Im­mi­grants bol­ster the la­bor force but also dis­pro­por­tion­ately go to those same big coastal cities.

“Day­ton’s height of pop­u­la­tion was 1953, and we’ve seen stag­nant growth for the re­gion since 1990,” said Nan Wha­ley, the mayor of the Ohio city.

“A lot of peo­ple say this was just go­ing to hap­pen, that this is the way it is – I hate that com­ment,” she said, ar­gu­ing that pol­icy de­ci­sions had in­cen­tivized in­vest­ment in coastal cities.

Over­all, 80 per­cent of U.S. coun­ties en­com­pass­ing 149 mil­lion peo­ple ex­pe­ri­enced a de­cline in the num­ber of res­i­dents ages 25 to 54 be­tween 2007 and 2017, ac­cord­ing to the pa­per, which was writ­ten by Adam Oz­imek of Moody’s An­a­lyt­ics and Ke­nan Fikri and John Let­tieri of the Eco­nomic In­no­va­tion Group.

They project that the trends will con­tinue, and that by 2037, two-thirds of U.S. coun­ties will have fewer adults of prime work­ing age than they did in 1997, de­spite over­all pop­u­la­tion

growth in that pe­riod. (Their pro­jec­tions tried to take into ac­count im­mi­grants in the coun­try il­le­gally.)

Poli­cies to en­cour­age Amer­i­can fam­i­lies to have more chil­dren would help over the long run by in­creas­ing the sup­ply of po­ten­tial work­ers in the fu­ture. So could ef­forts to en­sure that even strug­gling cities have the kinds of ameni­ties young fam­i­lies de­sire, par­tic­u­larly good schools.

The pop­u­la­tion of dif­fer­ent places is al­ways fluc­tu­at­ing, and econ­o­mists have tra­di­tion­ally viewed that as a mostly healthy process. Work­ers make their way to where they will be the most pro­duc­tive, en­abling the over­all econ­omy to adapt and grow.

But peo­ple who study re­gional economies are in­creas­ingly con­cerned that some as­pects of this wave of de­mo­graphic change make the pain more se­vere for places left be­hind – which can get stuck in a vi­cious cy­cle.

“There’s a pos­si­bil­ity that once lo­cal ar­eas start on this down­ward spi­ral, it’s self-re­pro­duc­ing,” said Ti­mothy Bar­tik, a se­nior econ­o­mist at the W.E. Upjohn In­sti­tute for Em­ploy­ment Re­search.

A shrink­ing sup­ply of work­ing-age peo­ple can prompt em­ploy­ers to look else­where to ex­pand, mak­ing it harder for lo­cal gov­ern­ments to raise enough taxes to pay for in­fras­truc­ture and ed­u­ca­tion, and en­cour­ag­ing those younger peo­ple who re­main to head else­where for more op­por­tu­nity.

It raises the pos­si­bil­ity that, if unchecked, th­ese de­mo­graphic trends might not merely re­duce over­all na­tional growth rates in the decades ahead. They could also cause the left-be­hind cities to hit a point of no re­turn that un­der­mines the long-term eco­nomic po­ten­tial of huge swaths of the United States.

The au­thors of the EIG report sug­gest a po­ten­tial so­lu­tion: an im­mi­gra­tion pol­icy that would stop the vi­cious cy­cle. They pro­pose that visas could be made avail­able to skilled im­mi­grants on the con­di­tion they go to one of the ar­eas strug­gling with de­mo­graphic de­cline. The idea would be to cre­ate growth in the work­ing-age pop­u­la­tion in those places, in­creas­ing the tax base and the de­mand for hous­ing, and giv­ing busi­nesses rea­son to in­vest.

“The real power of this is that it would start to change how in­vestors, busi­nesses and en­trepreneurs view lo­ca­tional de­ci­sions,” said Let­tieri, pres­i­dent of the group. “They would know that there is this new pipeline for tal­ent.”

Given hos­til­ity to im­mi­gra­tion in large seg­ments of the coun­try, he said, places should be able to elect whether to make visas avail­able to im­mi­grants as part of an eco­nomic de­vel­op­ment strat­egy. It would have to be a “dual opt-in” ap­proach in which both the com­mu­nity de­cides it wants more im­mi­gra­tion, and in­di­vid­ual im­mi­grants elect to move there.

Re­gard­less of what one thinks about us­ing im­mi­gra­tion pol­icy to try to ar­rest de­mo­graphic de­cline, there’s a more ba­sic point that ev­ery­one who cares about the United States’ eco­nomic fu­ture must wres­tle with.

De­mog­ra­phy may be the most pow­er­ful eco­nomic force of them all, and for much of the United States, the trend lines, for now, are point­ing in the wrong di­rec­tion.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.