The writer is the director of the Aspen Economic Strategy group and Neil Moskowitz’s professor of economics at the University of Maryland
The US faces a demographic challenge that many other high-income countries have faced for decades: fertility below replacement level. As American adults choose to have fewer children than previous generations, the nation faces the prospect of slower population growth. While some consider a decline in births to be good news for the planet, a slowdown in population growth also brings fiscal and economic challenges that cannot be ignored.
Fortunately, the recipe for boosting economic growth capitalizes on America’s historical strengths: welcoming migrant workers and creating the institutional conditions for innovation to thrive.
To maintain the population size of a country without migration, an average of 2.1 children must be born per woman in total. This number is captured in a statistic called the “total fertility rate.” The The total fertility rate in the US is now about 1.66, reflecting a rapid and steep decline over the past 15 years. As late as 2007, the total fertility rate in the US was 2.12. This decline in births has contributed to a slowdown in US population growth.
The size of the US working-age population has stood still for more than a decade. If fertility continues to fall or stabilizes at a low level, without a substantial increase in immigration, the labor force will soon begin to shrink. This means fewer workers, which generally means lower economic output. But it can also lead to less economic output per person and a lower standard of living. A shrinking workforce is also challenging the solvency of the US Social Security system, which, if fertility rates continue to fall, will be in even worse financial shape than before. assume official government forecasts.
In the US, along with many other high-income countries, fertility rates fell below replacement levels in the 1980s. While the fertility rates of other high-income countries have remained well below 2 since then, the U.S. fertility rate climbed above 2 in the 1990s and remained high well into the 2000s. Now the US appears to be on a path of convergence to the sustainable lower levels of total fertility in other high-income countries. Even in Scandinavian countries, with their particularly generous systems of government support, total fertility rates are well below replacement levels.
The stubbornness with which fertility rates have remained low in other advanced economies probably suggests that the current low fertility rate in the US is not an anomaly, but here to stay. The country must be prepared to face the demographic reality of slower population growth.
In response to persistently low fertility levels, many other countries have introduced pronatalist policies, with the aim of making it more financially attractive or viable for people to have children. In 2003, for example France announced a €800 bonus for every baby born. In 2007, Spain introduced a baby bonus of €2,500 per child. In China, after decades of a one-child policy, the country now offers financial incentives and tax credits for having more children.
Incremental pronatal policies, such as more extensive child tax credits, more generous childcare subsidies, or extended paid family leave, could have a modest effect on the total fertility rate in the US at best. However, the total fertility rate is unlikely to return to replacement levels in the foreseeable future.
Therefore, for the US economy to remain vibrant, more foreign-born workers must enter the country. America’s demographic outlook makes it all the more imperative that we fix our broken immigration system. However, the politics of doing this is difficult. Federal policy will need to be designed to recognize that increased immigration, while in the best interest of the nation, can negatively impact certain communities, at least in the short term.
Immigration Reformation is the most obvious and immediate policy response to the challenge of falling birth rates and slowing population growth. Others include specific steps to promote scientific innovation, as well as a series of efforts to strengthen human capital.
In uncertain economic times, a divided Congress must come together with the White House to mitigate the effects of stagnant population growth with smart policies. Pursuing immigration reform and a robust plan to boost innovation should be top of the agenda when the new Congress convenes in January.