The heads of the central banks of Japan, the United Kingdom and the European Union have all recently expressed concern over the effect of lower population growth and aging on their economies. Though less severe, the United States also faces slower population growth and an aging population. Recent research indicates that these trends will constrain economic growth.
Lower population growth and aging reduce economic growth by slowing the expansion of the labor force. It can also lower the production of new ideas, a driver of long-run productivity and economic expansion.
Let’s examine the most recent Bureau of Labor Statistics projections of employment growth by occupation over the next 10 years (2023 to 2033). We see that total employment is expected to increase by 4 percent. One-half of the occupations that grow faster than this total figure tend to be labor-intensive jobs. Healthcare support, healthcare practitioners, and community and social services make up three of the top four high-growth occupations. These are jobs where new technology will serve as a complementary relationship with the people doing this work. Not surprisingly, computer and mathematical occupations are projected to be the second-fastest job-growth area.
How can we fill these jobs to mitigate the adverse effects these demographic trends will have on the economy? Policies aimed at increasing birthrates have shown limited success. For example, the Scandinavian countries have generous family policies, yet fertility rates have declined below the replacement rate.
To help middle-class families raise their children, we may still choose to expand these policies in the United States, but it is unlikely to shift aggregate fertility significantly. To the extent that more children are born from these policies, they will not have much of an economic effect for decades.
Some argue that AI and robots can offset these trends. There is evidence supporting this view. One cross-country study found that a 10 percent increase in the number of workers over 56 years of age, relative to workers between 21 and 55 years of age, was associated with a 1.6 increase in the number of robots per 1,000 workers. Age explains 35 percent of the variation in robot investment. This result occurred primarily in manufacturing. This suggests that technology, specifically robots, can at least partially mitigate the effect of aging on the manufacturing sector. AI may also be able to offset slowing labor force growth by substituting for workers or increasing the productivity of current workers.
Another option is to increase immigration into the United States to offset these demographic trends. However, greater immigrant inflows are currently politically unpopular.
In the near future, citizens and politicians will need to face reality. We will soon need more skilled and less-skilled workers soon. Healthcare is a perfect example. An aging population affects the demand and supply of healthcare and other factors. As we age, there will be fewer doctors, nurses, and providers of home health support for the elderly due to retirement. As we age, the demand for healthcare services rises. How will we fill the gap? Once again, complementary technologies can be of great help. The bottom line is that we will need more healthcare workers.
The fastest way to fill this gap is by expanding the number of healthcare workers allowed into the country. This will not be easy. Aging is a global issue, leading to a significant increase in the demand for these services worldwide. It would be wise for the United States to reconsider its immigration policy and reform it to attract more of these workers into the country.
It makes sense to act now to solve our future labor force problems. It makes the most sense to continue developing new technologies. While there is a justified concern about technology displacing current workers, over time, it can play a significant role in offsetting the effect of declining fertility rates on the labor supply in the economy.
Expanding immigration is an unpopular policy idea with the current administration and Republicans. It is hoped that future administrations will recognize our growing demographic challenge and implement immigration policies to alleviate these pressures on the economy. New technology and allowing more skilled people from other countries into the United States are the best solutions.
