Demographic downer: Aging population projected to cost economy $1 trillion each decade
Timothy P. Carney
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While America’s life expectancy has flatlined in recent years, it continues to be a full decade longer than it was two generations ago — about 80 years compared to about 70 years in 1963.
At the same time, the birth rate in the United States has plummeted from about 2.1 babies per woman in 2007 to about 1.7 in 2022.
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The number of children in the U.S. is now shrinking every year, and the number of elderly people is growing. That means that in the near future, we’ll have fewer workers each year and more retirees. Already, the working-age population of the U.S. has flatlined.
What will this rising old-age ratio mean for the U.S. economy? Nothing good.
A new study from two scholars at Harvard University’s Department of Global Health and Population counts 70 countries (including the U.S.) that will see a demographic drag on their per-capita gross domestic product. These economies will continue to grow over the next few decades, but the scholars estimate that the growth will be significantly dampened by population aging.
“Without population aging,” Harvard scholars Rainer Kotschy and David Bloom write, “income per capita in OECD countries is projected to grow on average by 2.5 percent annually between 2020 and 2050. With population aging, growth is projected to slow by 0.8 percentage points,” if we assume current patterns of health, retirement, and death.
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In the U.S., the demographic drag on the economy will be about 0.5 of a percentage point. The possible mitigating factor is whether people decide to work a lot longer in the future than they do now and have in the past. Longer working lives could cut that demographic drag in half to 0.4% for the average country and 0.25% for the U.S.
In any event, our baby bust will not only mean a smaller economy, but it will mean a smaller per-capita economy than if we had had more babies to keep up with our longer life expectancy.