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Schafer: Demographic trends favor U.S., if we do things right

  • Article by: LEE SCHAFER
  • Star Tribune
  • July 7, 2012 - 5:23 PM

For those of you fretting over the perceived loss of American economic leadership, cheer up.

Demographic projections through 2050 indicate that the United States will be in a much better position than other major economies, with more people of working age and relatively fewer older dependents.

The U.S. still will be getting older, leveling off in about 2030 as the last of the baby boomers ease into retirement. But of the five largest global economies today, only the U.S. will see significant growth in working-age population between now and 2050.

More working-age people to make and spend money creates the potential for a healthy economy, but good policy choices are needed, too. For example, more should be done to encourage and enable young Hispanics to pursue training and higher education. After all, Hispanics are a big reason why the American workforce will get younger over time, as they already make up more than a quarter of the U.S. population under the age of 1.

Plenty of criticism followed the Obama administration's recent decision to stop deporting undocumented youths, which was a small step in that direction. It seems arguments over immigration policy would be better informed by a refresher on the concept called the dependency ratio.

Two Harvard School of Public Health economists, David E. Bloom and David Canning, are among the best-known writers on this topic. The duo studied Ireland and its booming economy of the 1990s, tracing the country's economic success back to 1979, when severe restrictions on contraception were finally eased.

Soon, the birth rates in Ireland declined and the fortunes of the Irish rose as a greater proportion of people were working, producing and spending. The economic boom that followed gave rise to the nickname Celtic Tiger, as Ireland's real gross domestic product growth peaked at an annual rate of more 10 percent.

The same factors work in reverse, too. Those of us over 50 can remember when Japan was what China is now, the big-growth economy Americans wring their hands over.

Japan's economy has performed better since 1990 than the popular "Lost Decades" narrative would suggest, but its growth rate has trailed the U.S. and Germany. And it coincided with the graying of Japan, as today about 23.9 percent of the Japanese are 65 and over.

Looking ahead to 2050, Japan and Europe will keep getting older. Economic titan Germany also is aging, and more than 30 percent of its population will be 65 and over. By comparison, the U.S. will look positively youthful -- only 20.5 percent of Americans will be among the elderly ranks, thanks to 46.6 million more working-age people. None of the other of the five largest global economies today are projected to have any growth in this segment at all.

The projections on China are particularly stunning, with an expected decline of more than 211 million people age 15 to 64 by 2050. No one should expect 38 straight years of gaining ground on China, but if you buy the argument of economists like Bloom and Canning, you shouldn't be reading about Chinese economic growth in the summer of 2050.

China's situation is an unintended consequence of the country's one-child-per-family policy, but it's not like the projected growth of working-age people here resulted from any savvy U.S. strategy. To the contrary, many new workers will be children of people here today whom we tried to keep out.

"Our demographic situation is actually quite favorable compared to Europe and China," said Jeffrey Passel, senior demographer for the Pew Hispanic Center in Washington. "We have had an immigration policy and an immigration flow that contributes to this composition." He added that "if we are projecting things 40 years out, the growth is immigrants and their children."

Passel said much of the nation's population growth through 2050 will be among Hispanics. And that raises policy challenges around educational achievement and access to higher education, particularly as a college degree has become a critical step for moving into a career. Today, blacks and Hispanics lag far behind whites in getting one.

The Obama administration recently said it would stop deporting undocumented young people who are trying to move through the education system. They had to come here before they were 16 and must be in school, or are high school graduates or military veterans.

Pew estimated that 1.4 million people will be affected. Passel said an even larger group, at more than 4 million, are the U.S.-born children of undocumented immigrants. Passel noted a 2011 study by the University of California-Irvine that found an achievement gap among the U.S.-born children of undocumented Mexican immigrants -- and evidence that providing paths to legal residency for undocumented mothers would improve their kids' academic performance.

As it happened, Harvard's Bloom and Canning argued that the Celtic Tiger may not have happened solely because Ireland allowed its population to grow more naturally. The researchers say the country's introduction of free secondary education, followed by an expansion of higher education programs, were critical to its success.

Like Ireland of the not-so-distant past, the U.S. will have a growing, younger workforce to build upon. Just how Americans decide to nurture its next generation of workers will be critical to their long-term success.

"Age distribution changes merely create potential for economic growth," Bloom and Canning explained. "Whether or not this potential is captured depends on the policy environment."

lee.schafer@startribune.com 612-673-4302

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