America's Demographic Crisis

We Need More Workers

On the same day the Congressional Budget Office (CBO) released The 2022 Long-Term Budget Outlook, the budget scorekeeper for the Legislative Branch also released The Demographic Outlook: 2022 to 2052. The latter report has received even less attention than the former for various reasons, particularly because Members of Congress tend to work in the “here and now” rather than focusing on long-term sustainability.

Be that as it may, the demographic outlook is just as concerning as the long-term fiscal problems that the United States faces, and the two are inextricably linked because of federal entitlement programs like Medicare and Social Security. Why? Well, it’s because our population is aging, and the available labor force will gradually fall to an area not seen in more than half a century.

The primary problem that the United States faces as a society is that we’re not having nearly enough children. The good news is that we saw a 1 percent increase in births in 2021. This was the first increase in births since 2014. However, that increase followed a record low in 2020. The increase also took place during a global pandemic, during which many spent more time at home. It’s far too soon to say whether this is a reversal of the trend.

The bad news is that even with the 1 percent increase in births, we’re still far below the replacement rate. The United States needs 2,100 births per 1,000 women for the population to replace itself. The total fertility rate in 2021 was 1,663.5 births per 1,000 women. (The CBO projects that the fertility rate will increase ever so slightly from 1.6 children per woman in 2022 to 1.8 in 2030, where it is expected to remain.)

The bigger bad news is that as our society grows older, the number of deaths among the population will exceed births. Now, it’s important to keep in mind that the CBO is looking at all of this over a substantial time period, so there’s uncertainty, and it’s important to note that we’re not projected to see a decline in population. We are, however, expected to see slower growth.  

The Census Bureau recently revealed that the population grew by only 0.1 percent in 2021, which is the smallest increase since the founding of the country. Granted, this is through the lens of the pandemic, during which an estimated 415,000 people died in 2021 (making COVID-19 the third leading cause of death) and immigration slowed.

In 2022, 14.3 percent of population growth is expected to come from births. This is expected to increase in the short term, reaching 32.1 percent in 2027. However, this share will begin to decline as deaths begin to exceed births.

The CBO projects that the deaths will exceed births in 2043 and negatively impact population growth on the infinite horizon. Immigration will be the only source of population growth from this point forward. This is a year earlier than the previous estimate of 2044. (That estimate came from the data released in September 2020 along with The 2020 Long-Term Budget Outlook.)

The CBO didn’t provide data related to the labor force in this report. The most recent projection comes from September 2020. For some context, the highest labor force participation rate came in January to April 2000. During this four-month stretch, the labor force participation rate was 67.3. It began a slow decline that was exacerbated by the Great Recession and a slow recovery. The same is true of the current climate. The decline was exacerbated by the COVID-19 pandemic and a mix of other factors, including government programs that disincentivized work.

At the time, the CBO projected that the labor force participation rate would fall to 59.6 in 2043. One has to go back to 1969 to find a labor force participation rate that low.

The CBO does provide average labor force participation data in The 2022 Long-Term Budget Outlook. The average rate between 1992 through 2021 is 65.1. The average rate between 2033 through 2042 is projected to be 61.0. The average rate between 2043 through 2052 is projected to be 60.7.

One of the focuses of Members of Congress is the growth of the economy. Prior to 2021, the United States hadn’t seen real growth of gross domestic product above 3 percent since 2005. In 2021, as the United States recovered from the COVID-19 pandemic, the economy grew by 5.7 percent. Obviously, with inflation bearing down on the economy, growth isn’t expected to be great in 2022.

Some have decried economists’ projections of low growth, but the reality is that growth doesn’t come from tax and fiscal policy. There are other factors that come into play, from trade to the workforce. The true power of an economy doesn’t come from consumption; it comes from production. As the number of available workers declines, economic growth will become stagnant.

The CBO projects an average real GDP growth rate of 1.7 percent between 2022 through 2052, but the projections for the periods 2033 through 2042 and 2043 through 2052 are projected to be 1.6 percent and 1.5 percent.

Members of Congress focus on jobs, but they focus a lot less on the need for workers to fill those jobs. Before the pandemic, there were stories of hundreds of thousands of more job openings than available workers. This is happening now, too, as the economy continues to recover from the pandemic; only now, there are stories of millions of job openings than workers.

Tax policies designed to encourage married couples to have children haven’t worked. Thousands of individuals with criminal records have difficulty finding jobs. Immigration reform is a political football. Our demographic situation isn’t unique. Many, if not most, modern economies face the same problem, but we can’t expect our economy to grow as it has in the past without more workers to produce.