The Economics of an Aging Population
Economic Policy Brief #144 | By: Rosalind Gottfried | January 9, 2022
Header photo taken from: Princeton University
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Photo taken from: Global Risk Insights
The aging of the baby boom generation will continue to change the shape of the American labor force. Curremtly,16.5% of the US population of 328 million, or 54 million, are over the age of 65. By 2030, the figure will be 74 million and the fastest growing group are those over 85. Additionally, the fertility rate is lower than in past generations, hovering at about 1.78 (2022) and that figure represents a failure to replace the population. By 2035, the US population will have more people over the age of 65 than under the age of 18. Ostensibly, this will result in an insufficient number of workers to support the needs of an aging dependent population.
The outlook is not as dismal as it seems, at first sight, due to two factors: the increased well-being and affluence of the aging boomers and the contribution anticipated from immigration. Ninety percent of the increases in employment between 1998 and 2019 emanated from workers 55 and older, and the trend is slightly more pronounced among women than men in the 65-69 age group. People 55-64 account for 26% of new entrepreneurs (2017) up from 19% ten years earlier. Overall good health has contributed to a trend of longer workforce participation though the United State ranks 9 in countries surveyed regarding workers’ employment over the age of 55. Americans over 65, and professionals ages 45-64, are the wealthiest groups and comprise a sizable portion of consumers, especially as their needs for products and services grow as they age.
Immigrants are also an essential element of the demographic changes in the US. The Trump administration’s policies reduced legal immigration and that has damaged the health of the economy and the growth of the labor force. The US needs immigrants to boost both of these and also to replace its aging population. Immigrants not only contribute to the economy by labor and consumption but increase the birthrate as well, though not by enough to guarantee the replacement of the current U.S. population.
President Biden has been trying to pass aid which would increase the Medicaid budget by 400 billion dollars over ten years. These funds would support home caregivers for the elderly and disabled and increase in-home workers’ wages. Increasing the aid by this amount, as introduced in March 2021, does not seem politically viable though some measures will have to be taken or the aging population will be severely underserved.
Alternative programs would consider extending retraining to adults in their 40s-70s and/or having employers provide partial retirement where workers could continue in jobs but at less than 40 hours a week. Additionally, immigration policies introduced by the Biden administration, would increase legal immigration by 28%, yielding a significant increase in the labor force and providing more consumers.
Photo taken from: Los Angeles Times
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As the Baby Boomers age, the direst predictions of population decline are not at all inevitable since this generation is the healthiest, wealthiest and most long lived to date.
The impact of the pandemic on the long-term participation of boomers is not yet clear but policies regarding support for the workforce are essential. Boomers may not be parents but likely they are helping their adult children stay in the labor force by providing care to their grandchildren; this trend adds urgency to the need for better childcare policies, as well.
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