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BOHANON & STYRING: Quest for growth faces demographic headwinds

January 16, 2016

Economic AnalysisEconomics is loosely defined as the study of how people go about making a living. But “how people go about making a living” can be stretched pretty far. Almost anything that affects the human condition can qualify. Politics, public health, technology, you name it. Demographics—the study of population—is a case in point.

Material prosperity (GDP per capita) depends on the productivity of the workforce. It also depends on the percentage of the population in the workforce. The very young and the very old are not that productive, and in any case we have come to expect them not to be working. Oldsters, with their heavy medical requirements, are particularly expensive to support. A low birth rate coupled with extended life spans for old folks is a recipe for an economic squeeze.

The demographics for most of the developed world are terrible. Europe, Japan and the United States all suffer from a problem called World War II. Births were low during the war as potential fathers were away being shot at. When they returned, births soared (the baby boom of 1946-1964), followed by a “baby bust.” The first boomers hit age 65 in 2010, and 76 million in the United States are right behind.

The pure demographics of boom/bust in Europe and Japan are even more severe. Unlike the United States, Japan allows little to no immigration to bolster its workforce. Fertility rates (births per woman) in most of the European continent have slipped below the 2.1 necessary to replace populations. In some cases, way below: While the U.S. fertility rate is at 1.9, Spain is at 1.5, and Italy, Germany and Japan are at 1.4. One wag quipped, “By 2050, there will be an Italy and a Spain, but there won’t be any Italians or Spaniards living there.”

Russia and China have special problems. Russian men die early from too much vodka. Vladimir Putin has to make his geopolitical play now before he runs out of soldiers. China recently abandoned its “One Child” policy, but the damage has been done. One Child started 35 years ago, and those one-child parents are now near retirement. You don’t need us to spell out the implications.

The demographics are bad, but they needn’t foredoom the world to economic stagnation. But all the more reason robust economic growth must be at the forefront of economic policymaking.•

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Bohanon is a professor of economics at Ball State University. Styring is an economist and independent researcher. Both also blog at INforefront.com. Send comments to ibjedit@ibj.com.

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