Are demographics economic destiny? Are demographics economic destiny?\images\insights\article\busy-urban-street-small.jpg July 9 2021 June 18 2021

Are demographics economic destiny?

After Covid, revising immigration policy is urgent.

Published June 18 2021
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Over the past decade, the U.S. population expanded at its second-slowest rate since the government began counting in the 18th century. One of the consequences of the global pandemic was a sharp decline in both life expectancy and fertility. With a tragic 600,000 Covid-related deaths (and counting) in the U.S., the recent decline in life expectancy hopefully will prove to be temporary. But decreasing fertility trends are a stickier wicket. While Covid-19 has certainly accelerated the recent trend, the birthrate here has declined for six straight years and in 10 of the last 11 through 2020 to a new record low. To be sure, the issues are thornier and longer-lasting than the pandemic, with potentially significant economic and financial-market implications.

This is not a U.S.-centric problem. Many of our global trading partners are grappling with the same concerns. To that point, crafting a more intelligent immigration policy may represent a promising solution. In our view, drawing the best and brightest from overseas to live, study and work here would help to drive stronger, longer-term economic growth and accelerate our near-term recovery from Covid.

Life expectancy plunges due to the pandemic According to the National Center for Health Statistics, a person born in the U.S. now could expect to live to 77.8 years of age (its lowest level since 2006) based upon data from the first half of 2020. When full 2020 and 2021 data is available, the center expects a further decline. That compares with 78.8 years in 2019—the largest 1-year decline since World War II, when life expectancy plunged by 2.9 years from 1942 to 1943. Female life expectancy at 80.5 years last June is now 5.4 years greater than men at 75.1.

Organic fertility sharply lower U.S. women had nearly 3.61 million babies in 2020, down 4% from 2019, the lowest number of births since 1979. The total fertility rate (the number of babies a woman would have over her lifetime) declined to 1.64, the lowest rate on record since the government began tracking it in the 1930s. That’s less than half the 1957 cycle peak at 3.6 and well below the replacement rate at 2.1. With $1.7 trillion in existing student loan debt and the exorbitant cost of educating a child, many couples are choosing to have smaller families. Less generous maternity and paternity benefits and expensive child-care options likely contribute to this decision.

China’s population aging even faster The fertility rate in the U.S. remains above that of Japan, Germany and Italy. Earlier this month, China announced that married couples could have three children, ending its two-child policy (in place since 2016) that had failed to reverse its declining birthrate at 1.3. At its current pace, China’s population is expected to decline by half from 1.41 billion now to 730 million by the end of the century.

Productivity is an important swing factor Productivity in the first quarter of 2021 rose at a strong annualized pace of 4.1%, due to the sizable technology investments companies made during the pandemic, which will help to offset the sluggish rate of population growth. But to sustainably keep GDP growth at a trend-line (3%) or better rate longer term, we also need enough workers to accept the new jobs that we’re creating. The Job Openings and Labor Turnover Survey (JOLTS) leapt to a stronger-than-expected 9.3 million record in April. In addition, the number of vacancies exceeded hires by 3.2 million in April, the widest gap in history.

Immigration can be a solution In our view, the U.S. needs to create a safe, legal immigration policy to offset the sharp decline in our organic fertility rate and fill the new jobs that are rapidly being created. Importantly, new foreign workers also would pay taxes into our rapidly depleting Social Security Trust fund and Medicare.

We need these immigrant workers to keep our economy humming, and Pew Research estimates that immigrants will account for 88% of U.S. population growth until 2065. In fact, immigrants are taking many of the difficult jobs that most native-born Americans typically don’t want, such as in agriculture, food-processing plants, leisure & hospitality (such as restaurants and hotels), child and elder care, housekeeping, landscaping and construction. Many of these low-skilled jobs are going unfilled now as the economy is reopening, and it’s likely restraining economic growth.

Well-educated foreigners also are filling many open high-skilled positions. Three-quarters of the candidates for masters and Ph.D.’s in STEM majors at U.S. universities are foreigners (with roughly half of them from India and China), but we typically deport them after graduation. We should revise our H1B visa policies to let more foreign students educated at American colleges stay here and take these open jobs, putting down family roots.

What does successful immigration reform look like?

Solve the southern border crisis In May, a record 180,000 migrants surged across the southern border, according to U.S. Customs and Border Protection, up from 74,000 in January and only 40,000 in May 2020. “Don’t come” is simply not an effective strategy, so Texas Gov. Greg Abbott is proposing to finish constructing the border wall started by President Trump, make greater use of technology (such as drones and sensors), and hire more Border Patrol agents, immigration judges and lawyers.

Citizenship for the Dreamers and their parents We should provide permanent legal status and a path to citizenship for an estimated 800,000 DACA recipients who came to the U.S. illegally as children with their parents. Most are employed or enrolled in school, they are contributing to the economy and we need their skills and work-force participation. Similarly, many of their parents are among the 11 million undocumented foreign-born residents living in the U.S., with most working (and paying taxes) in tough jobs that most native-born Americans don’t want.

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Tags Markets/Economy . Equity . Inflation .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country.

The Job Openings and Labor Turnover Survey (JOLTS) is conducted monthly by the U.S. Bureau of Labor Statistics.

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