We the People, We the Problem
Jonathan Clements | February 19, 2016
WHY IS THE U.S. ECONOMY growing so slowly? Should we bar new immigrants—and toss out some of those already here? Can we afford today’s Social Security retirement benefits? These three huge public policy issues might seem unrelated, but they are connected by two demographic realities: The workforce is growing too slowly—and the retiree population is growing too quickly.
Over the next decade, the U.S. civilian workforce is projected to grow at 0.5% a year, versus a 50-year average of 1.5%. Meanwhile, we currently have 3.9 adults age 20 to 64 for every person 65 and older. That’s down from 4.8 to 1 in 2005—and the ratio is projected to hit 2.7 to 1 in 2030. Consider the implications:
- The U.S. economy has grown at an inflation-adjusted 2.9% a year over the past 50 years, with half of that growth coming from increasing the number of workers and the other half from increasing the productivity of workers. If the workforce is expanding at 0.5% a year, rather than at 1.5%, economic growth will inevitably be slower, unless we can somehow engineer an astonishing increase in productivity.
- One way to increase the number of workers is to increase immigration. I’ll leave others to debate whether that would be good for society or fair to existing workers. But the economic benefit is pretty clear: We would increase the number of workers and hence speed up economic growth.
- People often discuss Social Security as though it’s a federal budget issue. But the budget issue is just a symptom of a larger economic problem: Can those who remain in the workforce produce enough goods and services to provide not only for themselves, but also for their children and for our rapidly growing retiree population? It seems doubtful. That means we need to find some way to encourage folks to stay in the workforce beyond age 65, while also encouraging employers to keep these workers on. If we manage that feat, the budget problem would likely go away, thanks to the income taxes collected from a growing army of older workers.