The Demographic Squeeze

The population story takes us to the beginning of life, to the end, and to a demographic squeeze.

It’s the workers that are in the middle.

Population Problems

We could be looking at Italy, South Korea, or Japan. Throughout the world, we have what the NY Times called a “dizzying reversal.” Countries are adjusting to having more deaths than births. While we could wind up with fewer people in the world using up fewer resources, getting there will create a new demography. We are used to the young supporting the old. But what if there are not enough young people?

China

China’s one child policy is now a memory as they encourage couples to enlarge their families. But it is not quite working out as they had hoped. Combining a fertility rate that remains low, a shrinking worker population, and the aged living longer, China has a problem. Factories in search of workers have had to relocate to poorer areas of the country, others are moving to lower wage countries, and pension systems have begun to run out of money. At home, the remnants of the one child policy created families with one young working adult that supports two parents and four grandparents.

China’s shrinking working age population has more of the elderly to support:

U.S.

Somewhat similarly, the U.S. population growth rate, at 7 percent from 2010  to 2020, was unusually low. At the same time, the working age population (age 16-64) was up just 3.3 percent. Then, last year, the pandemic could have accelerated the trend with the labor force shrinking and more baby boomer retirees.

In 2020, the retiree numbers ascended:

As a result, by the early 2030s, our pay-as-you-go Social Security System will be insufficiently funded to pay what it owes. In addition to more retirees, the cause is the working age population’s lower growth rate:

This takes us to the squeeze.

Our Bottom Line: Dependency Ratios

We can sum up the population story with a 93 year old woman who was a student and a teacher in a building that became the nursing home where she now lives in southern Italy. The message from a closed school is fewer children that will grow up to become a smaller working age population.

As economists, we can say that in the U.S. the old age dependency ratio–the fraction that compares the unemployed elderly to the working population–is rising:

And that increase is one side of the “squeeze” for the labor force.

My sources and more: After a past econlife looked at car seats and fertility rates, this WSJ column was the next logical step. From there, more detail was in this NY Times article. And finally, here, the EU reported its old age dependency ratios.