The aging (and in many cases shrinking) population is a demographic phenomenon across much of the developed world. As women enter the workforce in greater numbers, this has provided a significant boost to economic growth, but it has coincided with falling birth rates that have put pressure on the demographical makeup of countries.
An obvious answer to this problem is to encourage immigration, but that has proven politically challenging, especially in the face of growing right-wing populism that appears to want to blame immigrants for all of societies woes.
A new report from The Conference Board highlights how damaging this is for the economy, and how it could be curtailing the record period of growth experienced by the American economy.
“America’s longest economic expansion on record—and one of its tightest labor markets in recent decades—has resulted in widespread benefits for American workers and the United States’ lowest unemployment rate in 50 years,” the report says. “But tightening labor markets are shining a spotlight on demographic challenges that could threaten continued growth and shared prosperity in the future.”
Access to talent
The report builds on a previous paper from The Conference Board, which revealed that access to talent was the biggest concern CEOs face at the moment. It’s a concern that has been mirrored not only by a recent letter from business schools from around the world about the importance of liberal immigration policies, but also from a recent policy paper from Harvard Business School, which posits that the recent economic growth period has largely been wasted as key structural changes have not been forthcoming (especially on immigration).
The report highlights how labor force participation rates have remained disappointing, even as the economy as a whole has grown for the longest period in US history, and labor markets have tightened. The authors worry that as the Baby Boomers move into retirement en masse, there will be a considerable labor shortage unless things change.
This is unlikely to come from the native population, as birth rates are at historic lows, but immigration has also declined sharply in recent years, with this forecast to remain slow for the foreseeable future due to political pressures.
“The demographic transition itself, and its implications for the US labor force, is no surprise,” the authors say. “It has been projected by government and policy analysts for decades. But even if these changes are not surprising, policymakers and business leaders have erred in not seeking ways to more aggressively ameliorate the challenges of an aging and very slow growing population, which could be a significant barrier to future economic expansion.”
Solving the problem
The report provides a number of recommendations on how this problem can be tackled. For instance, they urge the government to increase the Earned Income Tax Credit for adults without qualifying children so that people are incentivized to work. They also urge any barriers to working be removed, whether via better employee to employer matching or support for geographic mobility so that people can move to where jobs are.
They also urge the government to modernize immigration policy, especially in the reform of both the application and approval process for the H-1B visa. They also believe making it easier to gain permanent residence would help, as would the fast-tracking of applications for extremely talented overseas recruits.
Last, but not least, they believe helping older adults stay in the workforce if they wish to do so will help soften the blow from the Baby Boomers retiring. This could be done by eliminating health insurance cost disparities, or modifying the Social Security retirement earnings test.
“Though it has been a long time coming, the nation’s ongoing demographic transition poses challenges and risks to the trajectory of US economic growth that cannot go ignored by business leaders and policy makers,” the authors conclude. “To sustain and expand the benefits of capitalism and ensure that the US continues to generate increasing and shared prosperity for all Americans, the nation needs to embrace every available advantage to bolster the American workforce and provide businesses with the talent they depend on.”
There’s a growing appreciation of the challenges not only our aging population, but also the sclerotic immigration system bring to organizations who wish to ensure they have the talent required to thrive. There is a groundswell of opinion urging policy makers to act, but such is the polarized nature of modern politics, there is a significant risk that the required changes won’t be forthcoming, and the benign economic period of the last decade will have been largely wasted.
