posted on 10 April 2016
from the Atlanta Fed
-- this post authored by Karen Jacobs
In the next few decades, the nation will experience dramatic demographic change as the ranks of the old grow faster than the rest of the population. These changes will bring fiscal challenges and will affect the nation's labor supply and demand for products and services.
The graying of the population is expected to be a significant driver of U.S. government spending over the next quarter-century, the Congressional Budget Office has projected, because older people tend to depend heavily on entitlements such as Social Security; Medicare, the national insurance program for those 65 and older; and needs-based programs such as Medicaid and Supplemental Social Security Income.
Living to 85 and beyond
People are living longer, thanks to medical advances and a public focus on healthy lifestyles. The average baby born in the United States in 2013 can expect to live 79 years, which is 25 years longer than an ancestor born in 1920 and 16 years longer than someone born in 1940, according to the Centers for Disease Control - National Center for Health Statistics (NCHS; see chart 1).
Another demographic trend: women are having fewer babies than decades ago. In recent years, the U.S. fertility rate reached record lows, falling about 1 percent in 2013 to 62.5 births per 1,000 women aged 15 to 44, NCHS data show. Teen births have also dropped to historic lows. The U.S. Census Bureau projects that fertility rates will continue to drop and the pace of immigration will decline modestly. (See chart 2.)
These trends will slow the nation's overall population growth just as the youngest baby boomers approach retirement. The U.S. civilian noninstitutional population - that is, those people 16 years old and older who are neither in an institution nor on active duty in the armed services - is projected to rise 0.8 percent between 2014 and 2024, down from 1 percent growth in the previous 10-year period, according to the U.S. Census Bureau.
These two factors in conjunction with the aging of the baby boomers imply that the share of Americans 65 and older will rise from about 15 percent of the population today, or about 48 million people, to 21 percent, or 74 million, by 2030, the year the youngest baby boomers turn 65, according to U.S. Census Bureau projections. By 2050, that number is expected to nearly double to 88 million people, or 22 percent of the total U.S. populace. (See chart 3.)
The oldest of the old, those 85 and over, will account for a significant portion of the overall growth in the mature public. By the year 2050, adults at least 85 years old will account for 5 percent of the U.S. population, more than double their current 2 percent share, as their numbers triple to 18.9 million from 6.3 million now.
As the number of older people climbs, the proportion of working-age residents in the United States will shrink. Those 18 to 64 years old currently constitute 62 percent of the total population, but their share will drop to 58 percent by 2030 and 56.7 percent by 2060, Census figures show.
Shrinking labor market clouds future
The consequence of declining births and longer life expectancy is that in the future, proportionally fewer people of prime employment age will be around to pay the taxes that help fund Medicare, Social Security, and other government programs that support older people and children. (That goes also for critical national needs such as defense, security, border control, and education.)
By 2030, there will be 2.86 people of working age (18 to 64 years old) for each U.S. citizen over 65. That compares with 5 people per older person in 2000 and 9.09 people in 1940. The decreased ranks of the working-age population and the higher costs of funding entitlements for retirees threaten to depress economic activity and slow economic growth.
These population changes are set to occur against the backdrop of an economy that has not fully recovered from the Great Recession, which left many U.S. households worse off financially. As some baby boomers look to their golden years, several million Americans have seen the value of their homes, their biggest source of wealth, decline. (Some home values have recovered and increased.) Skittishness about world markets, low oil prices, and the specter of slower growth in China have raised market jitters worldwide and depressed the value of stock equities that help many build assets to sustain them through retirement.
The emergence of an aging population is likely to have profound economic effects that may not be readily apparent. People of working age largely contribute more support and resources to society than they receive, while the very young and old generally consume more than they produce. Much of the consumption of older people is funded by the government through programs such as Social Security. As declining births reduce the supply of the nation's labor market producers, government's ability to support older people will become strained. The imbalance of consumers and producers is already spurring debate about difficult policy choices among legislators.
A 2015 report from the U.S. Bureau of Labor Statistics forecasted average annual growth in gross domestic product of 2.2 percent over the next decade, flat with the levels from 2010 through 2014, but slowing from 3 percent annually between 1960 and 2007. The agency cited slowing growth in the labor supply, which is mainly the result of aging.
Health a critical factor
Neil Mehta, a demographer and assistant professor of global health at Emory University in Atlanta, says the critical issue is not how many more older people there will be in the coming decades. "A lot of the ramifications that aging will have for society are going to be dependent on health," he said.
He pointed out that while chronic disease is always a risk with aging, the health of older people has generally improved in the past 20 to 30 years. And while people reaching the age of traditional retirement may not want to work 9 to 5, they may desire and need to be active in the labor market, he added.
With this in mind, Mehta said policies that allow alternative workplace arrangements, such as working at home or opportunities to work part-time, are the kinds of solutions that should be discussed to help mitigate the perceived adverse macroeconomic effects of an aging population.
"There may be creative ways to tap into the potential for older people to contribute to the economy," Mehta said. (See the sidebar "Challenges of Aging Are Not Hopeless.")
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