GENERATION Z PLUS 5G: BOOM COULD BE AHEAD

Gen Z and 5G could accelerate growth in the next decade

The United States is graying, but the country happens to have a much larger wave of young workers coming, percentage-wise, than its rivals in the G-10.

Dark clouds gathering over the U.S. economy, like declining manufacturing and trade frictions, are battling with pockets of sunshine, like low unemployment and strong consumer confidence.

More forecasts, however, are calling for the longest-lived recovery the nation has ever seen to come to an end in 2020 or 2021.

Yet, the expectation, maybe call it the hope, is the next downturn will be more conventional, minus a financial crisis. And on the other side, the U.S. economy will have some tailwinds to power it forward.

“The full economic punch of the youth boom is on the horizon,” said Ellen Zentner, chief U.S. economist at Morgan Stanley, one of several speakers at the annual meeting of the National Association for Business Economics in Denver last week.

Most countries are coping with aging populations as birthrates fall and lifespans increase. The share of the world population age 65 or older is expected to nearly double from 8% of the total in 2015 to 15% in 2045, according to a report from Vanguard Research.

That trend will slow economic growth and drive up government spending, as workers, a shrinking share of the population, support a rising share of retirees.

The United States is graying too. But the country happens to have a much larger wave of young workers coming, percentagewise, than any of its rivals in the G-10.

And it is also a leader in techno

logical innovation, which will be necessary to get more productivity out of each worker.

“No country can catch up with the U.S. on human capital over the next 70 years,” said Amlan Roy, head of global macro policy research at State Street Global Advisors, who was on a panel at NABE with Zentner.

Zentner notes that Generation Y, better known as the millennials, is larger than Generation X that preceded it. Generation Z, whose oldest members are now turning 22 and leaving college, is as large as Gen Y.

What that means is the U.S. won’t see a big drop off in future workers, a predicament that Japan and much of Europe are facing.

“The growth in the working-age population will go higher in the U.S.,” said Zentner.

And that has practical implications, beyond filling seats at offices and slots on assembly lines. Some forecasters predict a severe fiscal crunch around 2030 will exhaust the federal government’s borrowing capacity and usher in another depression.

But what if there were enough young workers to support retirees, and they were productive enough to reignite wage gains, and the economy could maintain a faster pace of growth?

“That could push out the insolvency of Social Security another 30 years,” Zentner said.

A key reason why the U.S. birthrate has held up better than that of other developed countries goes back to a decision President Ronald Reagan made in 1986 to provide amnesty to 2.7 million immigrants in the country illegally, Zentner said.

“We are reaping the benefits of that,” she said.

In 2000, Roy suggested that countries with aging populations should take several steps, including abolishing mandatory retirement ages, closing the gender gap in employment, and revising their immigration policies.

But just having a bunch of young workers isn’t enough to drive an economy forward at full potential. Roy notes that India and China have several-fold more young workers than the U.S. to draw on in the decades ahead.

But those countries may not be able to create enough jobs to employ all the young people.

“It is not a demographic dividend unless you have jobs for them,” he said.

Getting more productive

Productivity gains, or the ability to generate more output for every hour worked, were an important driver of the last robust economic recovery the country enjoyed in the 1990s.

The spread of computing power and the expansion of the internet made companies and consumers more efficient.

U.S. productivity growth averaged 3% a year from 1995 to 2003, Federal Reserve Chairman Jerome Powell noted in a prepared speech Tuesday at NABE.

But in the years that followed, productivity growth has run only half as strong, for reasons that aren’t fully understood. Some economists argue that the 1990s were an aberration and productivity growth just returned to more normal rates.

Another view is that the economy is taking a pause until the next big wave of technological innovation takes hold. A third view, Powell said, suggests that the official measures aren’t capturing the full benefit of innovations like faster broadband connections and mobile devices.

“How should we value the luxury of never needing to ask for directions,” Powell asked.

One study Powell cited estimates recent technological innovations would have boosted GDP growth about half a percentage point a year had productivity measures captured them.

Productivity improvements appear to be the most likely path to lifting economic growth given that birthrates are on a long-term decline and immigration is slowing.

“We need to find a way to get productivity up,” said Edward Lazear, an economics professor at the Stanford Graduate School of Business.

But it isn’t enough to come up with a new widget. Workers need to know how to make the most of it, and a wide swath of them, not just an elite few.

The U.S. economy has done a good job of building demand for skilled positions. It hasn’t done as well at supplying workers with the skills they need to fill those positions, said Jonathan Gruber, an economics professor at Massachusetts Institute of Technology.

Economists and policymakers don’t even have a good grasp on the kind of training workers are getting once they leave the educational system.

The last time the federal government did an in-depth survey of employer-provided training programs was in 1995, said Diane Swonk, chief economist at Grant Thornton.

“We know nothing about it,” she said.

A technological revolution

In the years ahead, the next generation of wireless technology, called 5G, has the potential to transform the economy in the way the internet did, those familiar with it argue.

The technology promises to provide speeds 10 times as fast, and connect 10 times as many devices as today’s 4G technology. And it will greatly reduce the lag times in signals, paving the way for autonomous vehicles and surgeries done remotely via video feeds.

It will spawn applications that haven’t even been thought of yet but which will seem indispensable once they appear, said Morgan Kurk, chief operating officer of Commscope, a network infrastructure provider.

Separating hype from reality will take time. But it does appear what could set the coming technology wave apart from prior ones is that young workers will be well-equipped to take advantage.

They aren’t afraid of the advances in artificial intelligence and robotics that faster communication networks will open the door to, Zenter said.

“They are prepped, trained and ready for human-machine interactions,” she said.

And they love wireless connectivity. Kurk cited a survey that found 18- to 36-year-olds rank mobile devices in the top three of must-have items in life, ahead of indoor plumbing.

They probably would have ranked their devices ahead of electricity, except they realized they couldn’t recharge them, he joked.