Why Declining Population Growth Is Reason To Worry

Here’s What Policymakers Can Do About It

Jan 30, 2020
Finance

SMITH BRAIN TRUST  It’s a stat that didn’t get a lot of attention when it was released late last year. The U.S. population had expanded a mere 0.5% from the year before, its slimmest rate in a century, weighed by a steadily falling birth rate and a sharp decline in immigration.

But the stat from the U.S. Census Bureau did catch the attention of economists like Maryland Smith’s Albert “Pete” Kyle. What it portends, he says, is worrying for the U.S. economy.

Women in the United States are having fewer babies than ever before, according to data reported by the National Vital Statistics System and analyzed by the Centers for Disease Control and Prevention. The data, released this month, reveal a fertility rate of 1.73 births per mother, in what is an extension of a years-long decline.

The lack of births threatens to exacerbate the troubles brought by the aging population in the United States. Tens of millions of baby boomers already are in retirement, and tens of millions more are nearing retirement age, leaving a smaller share of younger workers to pay into Social Security and Medicare, the social safety net that supports the country’s elderly.

The problem, Kyle says, is compounded by the declining immigration rate. According to the Census, there were 595,348 immigrants added to the population in 2019, a definitive drop from three years ago when the country added over 1 million immigrants.

“Much like many other issues the country faces, the population decline is ultimately an immigration issue more than anything else,” says Kyle, the Charles E. Smith Chair in Finance and Distinguished University Professor.

Study, stay, work, pay taxes

There are ways to shore up the growing imbalance between the retired population and the working population, Kyle says. And one of the simplest ones is on university campuses. He says opportunities that encourage foreigners to pursue their academic aspirations in the United States and begin their professional careers here would create a new pipeline of high-skilled people who work and pay taxes.

“We need more visas for immigrants seeking out a college education and career in the U.S., as well as for professionals who already possess skills that are relevant for jobs,” Kyle says. “The productivity of the American economy would be greatly enhanced with this country being the land of opportunity.”

Family, values

In the longer term, he says, the U.S. economy would benefit from removing the tax burdens that discourage young people from having children.

Other advanced economies, notably Germany, have responded to the problems of an aging population by revamping their immigration policies and by drafting fiscal policies that seek to boost the birth rate.

“In the United States, a lot of the shortage of children is occurring in the middle class, where essentially high tax burdens prevent people from having children, especially when you consider the cost of living for families and the cost of having children,” says Kyle.

Working longer

Births offer one solution; immigration another. A third, says Kyle, is to delay what seems inevitable and raise the retirement age.

Germany and Spain have adopted plans to raise the retirement age over time to 67 from the current 65. While in France, the government agreed amid backlash to drop its controversial proposal to raise the full-benefits retirement age to 64, from 62.

In the United States, Kyle says, the change is essential to alleviate future economic constraints. Though, he adds, 67 probably won’t cut it here.

“As more people retire, we need more taxes to subsidize them. People are much healthier at age 65 compared to previous decades, and raising the retirement age to 66 or 67 isn’t enough,” says Kyle. “It should probably be raised to 70. That would take care of the program’s funding issues.”

If that fails, Kyle says, the focus must shift back to immigration.

“Foreign skilled workers who come to the U.S. generally pay more in taxes than they actually use in benefits,” says Kyle. “Through them, we can build our social safety net.”

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About the Expert(s)

KylePete

Albert S. (Pete) Kyle has been the Charles E. Smith Chair Professor of Finance at the University of Maryland's Robert H. Smith School of Business since 2006. He earned is B.S. degree in mathematics from Davidson College (summa cum laude, 1974), studied philosophy and economics at Oxford University as a Rhodes Scholar from Texas (Merton College, 1974-1976, and Nuffiled College, 1976-1977), and completed his Ph.D. in economics at the University of Chicago in 1981. He has been a professor at Princeton University (1981-1987), the University of California Berkeley (1987-1992), and Duke University (1992-2006).

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