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The U.S. Demographic “Advantage” Reconsidered

by Rebecca Strauss
May 13, 2013

President Obama holds up a baby after speaking in Las Vegas (Larry Downing/Courtesy Reuters). President Obama holds up a baby after speaking in Las Vegas (Larry Downing/Courtesy Reuters).

In the litany of Washington debates about current and future U.S. economic competitiveness, demographics is consistently placed on the advantage side of the U.S. competitiveness ledger. A broad view of the macro demographic trends—taking into account only population growth and age-profile—would indeed seem to support this claim. Yet this ignores other U.S. trends that could strike a blow at worker productivity, undermining the potential economic advantage of favorable demographics.

Economists use a handy formula to roughly calculate GDP growth: labor force growth x productivity growth. This means that to keep an economy growing, either the labor force or productivity need to expand (or there must be an expansion of one to compensate for any contraction of the other). A population’s age-profile matters, too. It’s best to have the bulk of a population be of working age. That way there are fewer nonworking, and therefore unproductive, children and elderly putting a burden on the economy.

At least compared to major economic competitors, the basic contours of U.S. demographics appear favorable, satisfying the labor force component of the GDP growth formula. Thanks to immigration and a lofty birthrate, the number of Americans aged 25 to 64 will continue to grow at a slow and steady pace for decades, with the age-profile relatively stable and concentrated in those ages. Most major European and East Asian countries face the (historically unprecedented) prospect of steadily contracting workforces and sharply older populations within a few decades. China and South Korea are in especially unenviable positions; thanks to stunning declines in fertility, their populations will age faster than any in human history.

But a more complete telling of the U.S. labor force position is less rosy. What matters more than raw working-age population numbers is the share of the working-age population that is actually working or seeking work, otherwise known as the labor force participation rate. Here the United States compares less well, especially for men. Employed Americans do indeed work longer hours and take fewer vacations than employed Europeans.  But as Nick Eberstadt lays out in his superb book A Nation of Takers, American men in their late thirties are actually more likely to go on permanent vacation; their labor force participation rate is lower than their counterparts’ in nearly every European country—including in debt-riddled and welfare-bloated Greece.

Productivity growth—the other component of the GDP growth equation—could be more difficult to muster in the United States as well. Productivity improves when fewer inputs are needed per unit of output. Smart, capable, vigorous workers (i.e., good human capital) help drive productivity higher. In other words, it’s not just the size of the labor force, but the quality of the labor force that counts. In the 2000s, the productivity growth of the U.S. labor force was more or less on par with that of the Japanese and European labor force. That may soon change.

The U.S. population is losing its edge on educational attainment. According to the OECD, Americans aged 55 to 64 are among the best-educated in their age group in the developed world in terms of high school and college completion. Americans aged 24 to 35 are solidly in the middle-of-the-pack. And uniquely among nations, the cohort entering the U.S. labor force is no more educated than the cohort currently retiring.

Health trends are also worse in the United States. Around 1950, Americans, and particularly American white women, were among the longest-lived and healthiest in the world. Now it’s flipped. A recently released report by the Institute of Medicine found that, compared against sixteen other “peer” countries, Americans have among the worst life expectancy and health at every age and income level. According to demographer S. Jay Olshansky, the United States could be the first rich country to experience declining average life expectancy—which at present is reserved to former Soviet countries and Sub-Saharan Africa. Least-educated white Americans are already experiencing a drop in life expectancy, and at a rate that is astounding demographers.

In a less understood trend—and one which is certainly less reported on in the media—Americans’ romantic relationships are comparatively unstable, with real negative consequences for American children. Studies have shown that relationship transitions (i.e., when a parent switches from one partner to another) are especially damaging to children—even more than being raised by a single mother without any partners. Americans have historically married more, divorced more, and have had shorter-term cohabitations than Europeans. But the differences in relationship stability are larger now than they used to be.  In a study from the mid-1990s, 12 percent of American children had experienced three or more parental partnerships by age fifteen. The next-highest, in Sweden, was just 3 percent. It is likely, if not certain, that the gap has widened in the past two decades.

Taken together, these trends—male withdrawal from the workforce, stagnating educational attainment, worsening health, and increasingly unstable living arrangements for children—could well take the edge off the U.S. demographic advantage.

Post a Comment 2 Comments

  • Posted by Gesta Bela

    I read this post in total disbelief.
    A post in a blog titled “Education and Human Capital” stating:
    “A population’s age-profile matters, too. It’s best to have the bulk of a population be of working age. That way there are fewer nonworking, and therefore unproductive, children and elderly putting a burden on the economy.”
    is chilling.
    The statement is not out of context, it is in its context from the article
    I would ignore the possibility of comments like “Orwellian”, “Apothetae revived, but for elderly people also”, and I will analyze it from the perspective of the economic arts (not the perspective of the science of sociology).
    Let’s remove from the population the children first. What will happen with the GDP growth, and even GDP? The toy industry will collapse, and millions of Chinese workers will become unemployed; those involved here in the toy industry will become unemployed. The “Black Christmas” will become a distant memory. No more minivans, no clothing imports from Bangladesh, Vietnam and Central China; those involved here in this type of commercial activity will become unemployed. Foxconn workers will become unemployed as the demand for Apple products will collapse. Facebook will lose its main source of demographic data to sell and advertising revenues. It is true that the much maligned teacher unions will disappear for lack of customers, but how about the future? And what will happen with those “Smart, capable, vigorous workers “if they are childless? Germany is one of the few Western countries (judging by the quality and demand of their GDP output) where some of these adjectives probably apply? Yet with 1.4 fertility rate, they might be extinct in a couple of centuries.
    Let’s remove from the population the elderly. The much hated takers, who were misled that contributing to Social Security or Medicare, or through local taxes for years they are entitled to anything (why would we imitate Norway’s sovereign wealth fund?)! Entire medical specialties will simply disappear; entire health related fields will be gone forever, with all employed in those field joining the unemployed.
    Where the disagreement with the author reaches galactic dimensions is when the “superb” epitheton (in English translation: glorified nickname) is used for what I consider just an opinion: “A Nation of Takers”.
    The disagreement is reduced to solar system dimensions on: “male withdrawal from the workforce”. So after years of outsourcing, off-shoring and other sophisticated terms for moving factories away, after inventing non-threatening Letter-Number work visas, males are accused that they try to withdraw from the workforce. Even construction jobs, in one of the countless boom/busts in real estate are taken. So although not everybody is knowledgeable enough to use the opportunities of HST algorithms, they use whatever opportunities offered by the socioeconomic system.
    These disagreements originate in our fundamentally different perspective on the surrounding world. Mine is rooted in Adam Smith’s “invisible hand”; the author’s is rooted in the Eastern/Central European “invisible hand” much heralded by the Chicago School of Economics. The world is not a larger Beregszász.
    Now returning to the substance of the entry, there are some points of agreement.
    First and foremost the catastrophic state of the educational system. There is an article is the month’s Foreign Affairs which captures it partially. Higher Education is becoming more and more a system of indentured servitude, a non-desired revival of an old colonial tradition. The only difference is that the typical term of indenture used to be four of five years. Medical school costs are around 250,000. Try to pay that in five years (there is an interest also, multiple times the LIBOR).
    I would add the withdrawal of the young generation from the agora. Take for example the number of comments in the Foreign Affairs and CFR blogs. It is minuscule, yet these two web sites should be a virtual public square for the younger generation. A Foreign Affairs subscription should be the most common gift for a teenager. Yet they chill on “You Tube” wasting precious and limited lifetime. Ask your average teenager, or even OWS protester to talk about NAFTA 2.0 or TPP, treaties which will affect dramatically their lives.
    Worsening health is another point of agreement. Obesity has now reached epidemic proportions.
    And the final agreement: all “could well take the edge of the US demographic advantage”.

  • Posted by mort eagleston

    Demographics do not matter it’s not the color of the skin it’s the content of the character. The demographics I see is decline of the moral fiber of America.

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