How America Will Age Over the Next 40 Years
We live in an economy with 150 million workers supporting 316 million people, 29 million businesses (80% of which will fail in the first three years), 11,000 lobbyists, 1.2 million lawyers, 17,000 pages of tax code, and half a million annual patent applications. There are so many moving parts that trying to spot trends can be nearly impossible.
But once every generation, a big, broad trend emerges that has the potential to affect just about everything. Twenty years ago it was the Internet. Over the last decade it was the debt bubble. And if I had to pick one big trend that could stand out as the most important story and affect nearly every industry and every person in the decades to come, it would be this:
America is getting older.
Almost every major nation enjoyed a baby boom after World War II as soldiers came home and families were rebuilt, creating a bulge in the population. There were 2.7 million babies born in the U.S. in 1910, 2.3 million in 1930, 2.5 million in 1940, and then -- boom! -- 4 million a year from 1954 to 1964. Despite the overall population doubling, more babies were born in the U.S. in 1956 than in 2009.
That demographic bulge made its biggest mark on the economy when the boomers hit their 30s and 40s -- their prime earning and spending years. That period -- the 1980s and 1990s for the U.S. -- is when baby boomers worked the hardest, started companies, saved the most, bought homes, and took vacations, providing an economic tailwind.
But after the baby boom comes the baby bust. The first baby boomer turned 65 in 2011. Ten thousand more will turn 65 every day for the next decade. The boomer cohort that fueled economic growth 20 years ago will go from producing Matlock to watching Matlock, creating a drag on economic growth.
What does this shift look like? The Census Bureau produces detailed demographic projections. The following charts are made with data from its International Data Base.
Here's a broad view of the demographic shift that will take place between 1990 and 2050:
It's serious stuff. Between today and 2025, the share of the population older than 60 will rise by 4 percentage points, or 23.1 million people.
Here's the shift in starker terms:
Shown a different way, overall population growth is shifting from an increase in younger cohorts to an expansion of older cohorts (a phenomenon fueled by both the baby boomer group and an increase in life expectancy):
One of the most worrying figures is the projected decline in the share of America's working-age population, or those between the ages of 15 and 64. It will decline by 6 percentage points of the total population between now and 2050:
This will be a drag on economic growth over the coming decades, as a larger share of the population will be drawing down savings and cashing in entitlements.
Oddly, it does provide one stealth advantage. The aging population means the economy needs to add fewer jobs today to bring the unemployment rate down than it did a decade ago. The old rule of thumb was that the economy needed to add 150,000 jobs a month just to keep up with population growth. Many economists think that figure is now 100,000 a month and should decline further in the coming years.
So is there any good news on the demographic front? Actually, yes.
The U.S. population is still growing. While certain cohorts will make up a different share of the population in the coming decades, every cohort will be significantly larger in 2035 than it is this year:
This is a huge advantage over other countries. China's working-age population declined in 2012 and is projected to plunge by 200 million between 2013 and 2050 as the effects of its one-child policy come due. Japan, Russia, and Italy will also see outright declines in working-age populations over the next four decades. America is aging, but it is one of the youngest countries in an aging world.
Another hopeful trend is an echo of what I'd call the "second baby boom."
After the baby boom, the birthrate plunged by about a quarter. By 1975 a million fewer babies were being born every year than were two decades prior. A consequence of that decline was that the population of those aged 30 to 44 -- again, the primary earning and spending group -- rose every year in the 1990s before peaking in 2001. Then, it declined. There are actually 3.8 million fewer Americans aged 30 to 44 today than there were a decade ago. That has undoubtedly had an impact on economic growth, and it helps explain a small part of the dismal growth of the last decade.
But we're now at a turning point. As the birthrate spike in the late 1970s and 1980s -- the "second baby boom" -- combines with higher immigration, the population of Americans aged 30 to 44 will resume increasing this year for the first time in 15 years and surge over the coming decade:
Adding it up, there are two demographic stories going on. One is that America is aging, which will slow economic growth in the next half-century compared with what we enjoyed over the last half-century. The other is that the number of prime-age workers will begin to increase this year for the first time in 15 years, which will actually boost growth in the coming decade relative to what we've been through in the last decade.
"The trick is growing up without growing old," baseball great Casey Stengel once quipped. That's true for countries, too.
Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.
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