On our Instagram page today, I posted some highlights from a recent study from the Economic Innovation Group, a Washington based think tank that is funded by tech investors and entrepreneurs provides an overview of the current demographic decline of the working age population in the US. The study posits the theory that the US is looking at a low growth future for the next 20 years because of the stagnant working age population, or the proportion of the population that is between the ages of 25 and 54. This age group is assumed to be the primary driver of the output of the economy and a smaller working population is assumed to equate to flat or smaller output.

Some of the key findings of the study were:

• U.S. population growth has fallen to 80-year lows. The country now adds approximately 900,000 fewer people each year than it did in the early 2000s. The last decade marks the first time in the past century that the United States has experienced low population growth and low prime working age growth on a sustained basis at the same time.

 

• 80% of U.S. counties, home to 149 million Americans, lost prime working age adults from 2007 to 2017, and 65% will again over the next decade.

 

• By 2037, two-thirds of U.S. counties will contain fewer prime working age adults than they did in 1997, even though the country will add 24.1 million prime working age adults and 98.8 million people in total over that same period.

 

It’s worth seeing this through a few visuals that the study provided which I also shared on Instagram.

Source: EIG

We can see above the boon that the baby boomers and generation X provided from the 60’s to the 90’s in terms of the growth in working age population. This trend has fallen especially since the early 2000’s and has not really rebounded since.

Source: EIG

The chart above is even more alarming, showing that a large majority of counties experienced losses in their working age populations starting in the mid 90’s. However if we look at the visual of how this played out on the map below we see that a lot of areas were winners when it came to growth by overall population.

Source: EIG

It basically looks like people are moving to the coasts, the west and the south in general so maybe there is not as much to be concerned about as we thought.

However, when we strip out retirees and kids the picture of the map looks a bit more grim.

Source: EIG

The above says to me that working age people are primarily moving to the south, the west and some areas where they are fracking for work. It does start to paint a more bleak picture of the situation for the rest of the country mostly the heartland.

The potential solution posed by the authors is to fill the gap with a “Heartland Visa” to basically encourage skilled immigrants to come to areas that are experiencing working age population decline and bring their skills and innovation to these places to further encourage investors to come back to those communities.

What the Study May Have Missed

Despite the fact that the study points out that the overall working population is growing, the birth rate in the US has fallen since the financial crisis and seems to show no signs of recovering for the native population. I think there are a number of reasons contributing to this, including:

• The cost of raising a child has been increasing in terms of the investment needed for them to be successful. Having opened up trade and focusing on a service economy means that college is a must and parents will have to spend years investing in their child’s education and saving for college, particularly daunting if you want to have more than a few children.

• The prohibitive cost of childcare. Childcare has been outpacing inflation over the past 20 years and acts as a significant barrier to working parents who may want to have more kids. France has a system that helps those that apply take care of kids from 2 1/2 months old to 5 year old. See how the cost of childcare has risen below.

Source: AEI

The childcare example in France is one of the tools the government has deployed over the last 30 years when they realized that the population was declining and they started to design policies to encourage people to have kids. This is was has helped France buck the demographic trend that much of the rest of Europe has seen in terms of their populations falling.

We can’t rule out something like this in the US is policies became more family friendly and birth rates start to tick up.

Another important factor not considered is the potential increase in productivity. This is an important factor that can make a huge difference in the growth of an economy but is very hard to predict because much of it is due to innovation. The authors argue that having more young people around to innovate increases productivity in general which is plausible but then again who saw the internet coming in the 1970’s? That is to say we can’t rule out fantastic new inventions that dramatically change output and our future.

The Devil’s In the Details

An important question to any solution that involves a “Heartland Visa” would involve freedom of opportunity and movement. In a free society, given all the opportunities that a skilled immigrant could have in say, Silicon Valley, how would they be made to stay in Ohio with the Heartland Visa? It may have to involve uncomfortable issues such as a visa that is only applicable for work in certain communities, essentially limiting the opportunity for those that come to the US on the visa.

Despite these caveats its an interesting read and an important trend that the authors not only point out but also propose a solution for. I think we are going to need more research and bold ideas if these trends are to continue and this is likely one of the first steps towards that.

The information provided by www.cashchronicles.com is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs. www.cashchronicles.com does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any tax or investment decision without first consulting his or her own financial advisor or accountant and conducting his or her own research and due diligence. To the maximum extent permitted by law, www.cashchronicles.com disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses. Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on the website or materials linked from the Web is at your own risk.