The US: living in a lower population growth environment
Posted on:
06
Jan
2012
by James Farmer
The 2000s were the slowest decade of population growth in the US since the Great Depression. The first set of state population counts for 2011 revealed that there has been no change to this trend. The US experienced the lowest annual population growth rate in 2010-11 since 1945.
William H. Frey concludes that the weak labour market in the US appears to have slowed down immigration to the US and to have led to a decline in birth rates. What is more, the baby boomers have passed their prime years for childbearing, affecting the natural increase of population. He has also observed a slow down of internal migration within the US as a consequence of fewer job opportunities across the country. Furthermore, the housing sector in the US is still under water. It remains difficult for a large share of the population to sell houses and raise capital. That makes it unaffordable for many Americans to pursue job opportunities elsewhere in the country.
What could follow economically from this demographic trend? Lower population growth will lead to an increase in the dependency ratio. More people will live on state pensions, and government spending on health care will increase. At the same time fewer workers will pay taxes and, consequently, negatively affect government revenues. The talent pool of skilled workers will shrink which might decrease economic competitiveness. Companies might have to pay higher wages due to lesser competition in the labour market. In the end, it could incentivise companies to look into outsourcing production or relocating business, which would also decrease government revenues.
It is fair to say though that this demographic trend of lower population growth might turn out to be only a relatively short episode in US history, just like after the Great Depression. The US economy might also prove to be able to maintain its high level of competitiveness and to continue to sufficiently attract talent as well as to improve productivity.
If not, government spending and/or tax benefits might need to be increased to support the economy and to maintain the current standard of living. Costs for social security and healthcare will inflate significantly at the same time. The negative impact on the US debt dynamics is striking. According to an estimate from 2007 that was available to us, mandatory spending composed of contributions to Medicare, Medicaid and social security as well interest payments will exceed government revenues between 2030 and 2040. This estimate stems from a time before the financial and sovereign debt crises corrupted US politics as well as the economic prospects of many US citizens.
What we also have to bear in mind is that potential GDP growth is traditionally considered being a function of population growth and productivity growth. I leave it open for debate how likely it is that future productivity growth will offset the lower population growth. In a gloomy scenario, lower population growth could prove to be not only the consequence of economic struggle, but also its future catalyst.
By Markus Peters, M&G Investments.
Tags: IFA | invest | M&G | population | US | USA
This is interesting and harkens back to an article in the November 19, 2011 Economist print edition titled, "Japan’s economy works better than pessimists think—at least for the elderly."
Indeed, it's encouraging that even The Economist is noticing one of the pitfalls of relying on GDP as a measure of prosperity and well-being. Japan is almost always referred to as an economic basket case in the Western press because GDP has not risen in the past decade. However, unlike the Euro zone nations or the United States, population is falling in Japan and so the average "Domestic Product," or economic activity per person has actually risen more in Japan than in the U.S. or the Euro zone. The second measure by which Japan surpasses the U.S. and the Euro zone is unemployment. Currently only 4% of Japanese are unemployed as opposed to 9% in the U.S. and 10% in the Euro zone. What are they doing right?
However, notice that the growth addicts cannot accept this as untarnished good news. The qualification on the headline "at least for the elderly" seems an ominous flag, until you realize that "elderly" here means 45 years old, and that the cultural norm is for older Japanese to save money to pass along to their children and grandchildren. And how is it harder for younger people in Japan, where unemployment is only 4% than in the US where it is 9%, and much, much higher for young people? Whose lost decade?
http://howmany.org/
http://www.economist.com/node/21538745
Which is why you would wonder why republicans would be so opposed to immigration!
Which is why you would wonder why republicans would be so opposed to immigration!
This is interesting and harkens back to an article in the November 19, 2011 Economist print edition titled, “Japan’s economy works better than pessimists think—at least for the elderly.”
Indeed, it’s encouraging that even The Economist is noticing one of the pitfalls of relying on GDP as a measure of prosperity and well-being. Japan is almost always referred to as an economic basket case in the Western press because GDP has not risen in the past decade. However, unlike the Euro zone nations or the United States, population is falling in Japan and so the average “Domestic Product,” or economic activity per person has actually risen more in Japan than in the U.S. or the Euro zone. The second measure by which Japan surpasses the U.S. and the Euro zone is unemployment. Currently only 4% of Japanese are unemployed as opposed to 9% in the U.S. and 10% in the Euro zone. What are they doing right?
However, notice that the growth addicts cannot accept this as untarnished good news. The qualification on the headline “at least for the elderly” seems an ominous flag, until you realize that “elderly” here means 45 years old, and that the cultural norm is for older Japanese to save money to pass along to their children and grandchildren. And how is it harder for younger people in Japan, where unemployment is only 4% than in the US where it is 9%, and much, much higher for young people? Whose lost decade?
http://howmany.org/
http://www.economist.com/node/21538745