[author: William Simpson]
U.S. Census Bureau projections from November reveal a startling prospect: The United States population will most likely begin to decline by 2080, spelling out substantial risks for economic and social stability in the coming decades. Population growth is critical for maintaining a strong economy and preserving social safety net programs, yet in many parts of the U.S., the rising cost of living along with stagnating wages are causing more and more young people to rethink their goals of starting a family. As fewer people have children, the population grows older on average, and there are more elderly relative to working-age citizens, current Social Security, Medicare, and Medicaid provisions will inevitably become unsustainable. While immigration can ease the issue to a degree, the natural population decline (population growth without taking immigration into account) may be too steep to balance out. Given that the changing U.S. population structure is already impacting the labor force and general economy, businesses must start planning now to manage the risks, which will only grow more salient in the coming decades.
Changing Economic and Social Landscape of the American Family
The factors leading to the U.S. population slowdown are like those facing most developed economies today, such as the European Union, Japan, and South Korea, which all recorded natural population decline in 2022. Over the past several decades, young Americans have increasingly seen prices for housing, groceries, and other essential expenditures outpace their salaries, leaving them less disposable income to save. At the same time, having kids is getting more expensive by the year; research from LendingTree shows that new families are projected to spend $237,482 over 18 years to raise a child. As a result, a growing number of millennials and Gen-Z adults are opting to have fewer or no children, with a 2021 report from the Pew Research Center finding that 44% of non-parents younger than 50 say it’s unlikely they’ll ever have children – a nearly 10% increase from 2018. Despite birth rates slightly increasing in 2021 following economic recovery from COVID-19, persistent inflation and high interest rates in the years since contribute to the financial hurdles preventing many Americans from starting a family.
Aside from economic contributors, changing societal views on the idea of family and different financial priorities for younger generations compared to their predecessors play a key role in America’s shifting demographic picture. Compared to past decades when getting married early and having more children was the norm, today we see wider acceptance of people waiting longer to get married and choosing to have fewer or no children. Moreover, young Americans are more likely than older generations to spend their money on leisure for themselves, such as travel, instead of saving toward future family planning. According to a survey of 1,950 U.S. adults conducted by the Harris Poll on behalf of Fortune in 2022, 65% of non-parents agree that the freedom that comes with not having kids brings them happiness; the number rises to 73% when just accounting for millennials in this category. As such trends continue, the population will continue towards decline, with the U.N. predicting the annual number of births in the U.S. to fall below the annual number of deaths by 2043. Yet, the impacts of this ticking demographic time bomb will be evident long before that date.
An Aging Population Against Dwindling Social Safety Nets
The most immediately evident consequence of population decline is the increase of the elderly population relative to the working age population, which will place greater pressure on public services due to more people relying on them while less people are working to help finance them. The proportion of Americans over the age of 65 stood at nearly 17% of the population in 2021, compared to 9% in 1960, and the Census Bureau predicts that by 2100, the number will rise to over 29%. Meanwhile, low birth rates result in less young people joining the workforce; the Congressional Budget Office already predicts that the size of the U.S. labor force will only grow by a mere 0.2% a year between 2024 and 2031. The slowdown in the labor force coupled with growing demand for healthcare and social services is already presenting challenges for millions of Americans, as Social Security benefits have exceeded money coming in since 2021; the program is expected to fall short of cash to pay promised benefits by 2033. Meanwhile, the Medicare trust fund, responsible for supplementing payments to hospitals and nursing homes will also run out of funds by 2031.
Potential Impacts and Mitigation Strategies for Businesses
Considering America’s shifting demographic picture, companies will need to recognize that the labor market of the 2020s is going to be substantially different than that of the 2010s, not to mention previous decades. A workforce depleted of young talent with the capacity to efficiently learn new concepts and processes is likely to negatively impact sectors ranging from IT, medicine, and legal, among others. On the other hand, industries currently powered by demand from younger consumers, namely transportation, travel, retail, apparel, and entertainment could experience shocks to anticipated future revenue. The U.S. position in the global market stands to be affected as well, particularly as presidential administrations have sought to boost domestic manufacturing and secure supply chain stability, yet a changing labor pool in the years ahead that may not provide enough skilled workers could undermine these efforts.
Another byproduct of an aging population is the workforce itself growing older on average; a recent Bain & Company study found that in G7 countries (consisting of the U.S., Canada, UK, France, Germany, Italy, and Japan), 150 million jobs will shift to workers over the age of 55 by 2030. People may choose to retire later, and policymakers could even opt to increase the legal retirement age, as France did earlier this year (though not without significant pushback from the public). Understanding that a slowing and aging population is an inevitability to some degree, companies looking to stay competitive for the future economy could find it beneficial to entice younger workers with popular incentives like remote flexibility, professional development opportunities, and student loan assistance, among other benefits, as labor shortages worsen.
Automation could also provide a much-needed solution for companies that face current or anticipated labor shortages because of a slowing and aging population. For decades, Japan has been comparatively successful in utilizing industrial robots for its manufacturing and later service sectors, alleviating an otherwise worse labor shortage stemming from its own demographic challenges. The rollout of ChatGPT this year and its potential to perform services at human-level quality highlight a potential avenue for which industries can mitigate stagnating or declining labor forces in the years to come. While unlikely to reverse the trend, greater immigration could alleviate shortages in industries that often rely on immigrant labor, i.e., agriculture, construction, leisure and hospitality, and manufacturing, bringing stability to the larger economy as the population continues to age. Yet whether it will provide a durable solution or simply delay the inevitable is a matter of debate, as immigration has already been the largest contributor to U.S. population growth for decades and would need to scale-up significantly to alter current population projections. Considering political divides on immigration policy, as well as the fact that countries that have historically contributed large amounts of immigrants to the U.S., i.e., China and India, are experiencing slowdowns in population growth, it may not be as much of an easy fix as one might expect.
The utilization of these strategies represents significant variables that could alter how a slowing and aging population impacts the U.S. economy and society in the years to come. The stakes are high – the U.S. is a global economic leader, yet to maintain a vibrant innovation-based economy, there needs to be a labor pool that is not only sufficient in number, but high quality enough to continue driving innovation. As a result, it will be essential to carefully manage the impact that the demographic transition has on society, ensuring that quality education and training opportunities do not become deprioritized. Understanding that the overall trend is unlikely to reverse, it will only help to be prepared for a handful of possible scenarios as the U.S. demographic picture changes, particularly as the effects intensify with each new generation.