Demographic Consequences of US Economic Stagnation

♠ Posted by Emmanuel in ,, at 9/12/2013 10:24:00 AM
US Labor Force Participation Rate
In development theory, there is thing called the "demographic transition" which argues that birth rates should diminish as a country becomes wealthier and more urbanized. Instead of "spreading their bets" by having many children in the hopes that at least one will succeed and be able to take care of them in their old age, wealthier folks believe that having fewer children endowed with high "human capital" via education and so on will better guarantee their success. It is also more difficult to have large families in households where both parents work and in cities where living costs and living space are at a premium. Moreover, the introduction of social safety nets such as pensions lessened the need for privately planning for retirement.

OK, so that's the theory, and it's held up quite well over the years. However, many developed countries are now entering a twilight zone characterized by vanishing economic prospects and diminished expectations for the future where most believe that the standard of living of future generations will be lower than current generations for obvious reasons. In the face of such difficulties, could a "reverse demographic transition" occur in which parents have more children again to assure them that at least one will make it and help provide for them in their old age?

Well, no. The United States provides some insights. Actually, the total fertility rate--the number of children a woman bears--fell to 1.89 in 2012. This is well below the replacement rate of 2.1 children per woman. In other words, if this trend continues, the United States will indeed suffer from depopulation, "Detroitification," unless migration can compensate. Looking into Census figures, it is indeed the case that current projections the US population will reach 420 million in 2060 are predicated on large-scale increases in migration. (Read the fine print.) In the absence of migration reform, though, I am not certain that the politics will necessarily be in place for that to happen.

All this brings us to the likely culprit for birth decline. Simply put, there are few jobs out there in America right now, and most of those which are available are of the low-skilled variety. Yes, the US has become a nation of burger flippers--employment statistics amply demonstrate that. With low-paying, short-lasting jobs becoming the norm, couples do not have enough security in raising families. Wages have been falling for over a decade, and there is little reason to believe they will rise significantly anytime soon. I disagree with Paul Krugman about the causes of this poor job situation--which is actually much worse when you account for women joining the labor force in large numbers in recent decades. Still, we can agree that America is, well, doomed.

How exactly a nation of burger flippers whose young people struggle just to find jobs of ever-decreasing remuneration is going to support droves of greedy seniors is beyond me. So is the point of higher education if all you will do is flip burgers for that matter.

Let us end with migration: something the Census does not sufficiently account for IMHO is the rising affluence of any number of traditional migrant-sending countries and other LDCs. Given better prospects of finding work there compared to the US (where there are few), I would expect net migration to move closer to zero. As bad as things are now, they can get worse.

Oh by the way, do you want fries with that?