Demography

For this week’s Highlight, I’ll be posting the Demography section in its entirety, with some minor edits and additions.

Demography is concerned with the size, structure, distribution, and capabilities of a population, which makes it arguably the most fundamental part of human capital – without enough people of working age, with the right skills and in the right places, everything else in the nation slows down.  The US is facing at least four significant demographic problems, and there is, unfortunately, a very limited range of options available to us to do anything about them.

Part 1:  An aging population

Part 2:  A broken immigration system

Part 3:  Demographic fluctuations

Part 4:  Increasing barriers to mobility (to be addressed next week)

All four of these problems have political and economic consequences and create policy implications for other parts of the Interlock.  In some cases (e.g., by reforming the immigration system) there are ways to fix a problem.  In others, we can only look for ways to ameliorate their effects.  For example, most people want to live longer and view an increase in life-expectancy as a good thing.  The question is not how to keep people from growing older – on the contrary! – but how to reduce the negative side-effects of people living longer.

An Aging Population

The biggest demographic problem we’re facing is the simple fact that the population is getting older.  Thanks to the baby boom in the mid-20th century, and the overall increase in life expectancy over the last century, the percentage of Americans who are over 65 is going to be increasing steadily between now and 2030.

This “graying of America” will have a number of effects on our social structure, workforce, and economy.  Unless there are major changes, the total bill for both social security and health care is going to rise, while the number of workers per retiree is going to drop, so each worker will have to pay substantially more in taxes to cover health care and retirement benefits for their elders.

Aging America [source]

Since there are limits to the amount of money that can amicably be extracted from the working age population to support the older population, the declining ratio between the two sets real limits on future payments to the elderly – limits that are going to be politically and socially painful to deal with when we finally have to face them.

A Broken Immigration System

The second big problem is the U.S. government’s dysfunctional immigration policy.  America, as a nation and a society, is remarkably friendly towards immigrants once they are here.  If you become a citizen, live according to our laws, and try to integrate into American society, then where you were born becomes merely an interesting biographical fact, far less important than what skills you have or how friendly you are.

Despite this, the legal attitude towards immigrants is markedly less accepting – severely limited visas for foreign workers, decade-long waits for citizenship, arbitrarily low quotas for immigrants from particular countries, etc.  The problems with the system are profound and have been a big contributor to the estimated 11m illegal immigrants living in the US, whose presence causes a great deal of anger among American citizens and legal immigrants.  In addition to being a large source of frustration for many, this situation is causing a number of negative effects in other parts of the Interlock.

As just one example, even during the depths of the Great Recession, many businesses could not fill vacancies for certain skilled workers, and therefore could not expand their operations inside the US.  This was in spite of the fact that many students were graduating from our universities with the needed skills and a desire to stay here.  They couldn’t fill those vacancies in part because our rigid immigration policies meant that most foreign students, even those who received advanced degrees from American universities, weren’t able to obtain permission to work for American companies that needed their skills.

In many businesses, each position that requires  highly specialized skills is typically associated with at least 5 to 10 less specialized employees.  Thus, the expansion of a division that requires 10 specialists would usually involve the creation of at least 50 to 100 new jobs for non-specialists, positions that could have been filled easily from the existing American workforce.  However, without the people with those specialized skills, those businesses could not expand, or could only expand by going overseas.  Those jobs – not just the specialized jobs, but all of the additional positions that they would have created – were lost to the economy because of our immigration system’s dysfunction.  This has helped keep unemployment high during our “recovery.”

Demographic Fluctuations

The third problem is one the US has been struggling with for over a century:  significant decade-to-decade fluctuations in the number of births per year.

Demographic Fluctuations [source]

Births per year began dropping in the 1920s, bottomed out at just under 2.5 million/year during the Depression, and then exploded between 1945 and 1962 in the famous baby boom.  The period between 1962 and 1971 saw a sharp decline in the crude birth rate, part of an overall drop from 25.3 births per thousand people in 1957 to 14.9 in 1973.

Some of that drop (and the subsequent recovery) was due to the “echo” effect of previous booms and busts.  The shortage of baby girls born in the mid-30s and early 40s meant that there were fewer potential moms in the 60s.

But if you compare the two lines on the graph above, it is clear that most of the drop was due to a decline in average births per woman.  Births per fertile-age woman dropped sharply between 1957 and 1975 and have remained low ever since, with occasional minor fluctuations.

Despite this modern stability in birth rates, however, the dramatic fall, rise, and fall in total annual births between 1920 and 1975 has continued to generate large oscillations in births per year.  In the process, our schools and communities were whipsawed by rapid, destructive fluctuations in student populations, as schools oscillated from overcrowding and teacher shortages at the peaks of the booms, down to empty classrooms and teacher surpluses during the busts, and back again.   Then as each cohort entered the work force, we had to cope with large variations in the number of entry-level positions that the economy needed to generate, causing sizable fluctuations in youth unemployment.

The post-war baby boom generation, in particular, has stressed and will continue to stress our society in many ways, as has the shortage of workers in the generation that followed it.  The boomer generation strained our schools and universities and dragged the political center of gravity towards itself in disruptive ways when the boomers were young.  They have continued to dominate political life in the US ever since, dragging the body politic with them as they aged, decade by decade, and often demanding and getting a disproportionate share of the nation’s resources.  Their insistence on ever more generous funding for retirement and medical care and ever-lighter taxes has created a perilously large future burden for the smaller generations born after them.  And they are now beginning to retire in such large numbers that they are creating large and hard-to-fill shortages in many skill categories in the economy.

Reduced Mobility

All of these problems have been further aggravated by a reduction in mobility of two kinds:  geographic mobility is down, especially for the poorest workers and those seeking entry-level work, and job mobility is also down.  I’ll explore some of the reasons for these phenomena and what their impact is on the economy and the rest of the Interlock in the next Highlight.

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