Birthrates and Demography: The Importance of a Decreasing Fertility Rate

birth graph

I don’t know about you, but it looks like babies are falling more and more out of style.

The year 2018 saw the United States fertility rate reach a 32-year low as fewer children are being born across the country. For the year, 3.8 million children were born, down from a record high of 4.32 million births in 2007. The U.S. has now seen a drop in births for 10 out the least 11 years.

There is not one single reason for the continuing decline in births. One cause stems from women as a whole growing more and more educated, with about 40% of the female population holding bachelor’s degrees in 2016, according to Boston College research. As more women go to college and enter higher paying career fields, they will be more likely to put off having children in order to focus on their careers. More educated women also tend to have less kids on average.

Higher use of contraception also factors into the equation. Since the passing of the Affordable Care Act in 2010 with its mandate for coverage of contraception, use of various forms has risen. According to the CDC’s National Survey of Family Growth, the use of intrauterine devices has increased to 8.6% of women in 2017, up from 1.3% in 2002.

This continuous drop in fertility rates is important to note since the U.S. population is growing older as the large Baby Boomer generation reaches retirement age. In 2017, 15.5% of Americans were 65 or older, up from 13% in 2010.

Demographers refer to a birth rate of 2.1 children per mother as a sufficient birth rate to replace workers retiring and leaving the labor force. The U.S. has not seen a birth rate per mother this high since 1971. The rate also reached a record low of 1.7 babies per mother in 2018. Together with retiring Boomers, this means that less people are working per retiree.

Economy Talk

Over time, decreasing birthrates can have a significant impact on the U.S. economy. A higher number of people retiring versus people entering the labor force has contributed to the decline in the labor force participation rate over the last 10 years, from 66.1% in March 2008 to 63% in March 2019. Less people working can strain business productivity, and the declining participation rate has contributed to the flat-lining of productivity growth in recent years.

Adding to this, a higher proportion of retirees to workers adds strain to our safety net programs. The trust fund that supports social security is expected to run out by 2035, at which point only 75% of benefits will be paid to recipients. Medicare spending is projected to increase from 15% of the federal budget in 2017 to 18% in 2028 as well. These growing strains come at a time when the federal budget deficit as a whole is already growing towards a record $1 trillion.

Japan provides an extreme example of the long term effects of low birth rates and an aging population. There, 28% of the population is over 65 years old. Japan has a birth rate of 1.4 children per mother as well. As their population has grown rapidly older, they have faced a growing strain from government debt, which reached 250% of their GDP in 2018 (government debt is 108% of GDP in the U.S.). The combined effect of a shrinking workforce and the strain on public finances has helped keep Japanese GDP growth below 2% in every year since 2005 (except 2010, the first year out of the Great Recession).

With the second highest median age in the world, Japan serves as an important example for what can happen if low fertility rates persist. There is key difference between the U.S. and Japan though that has helped keep America as a whole from aging as fast: immigration.

The Importance of Foreign Workers

Japan has some of the strictest immigration laws in the developed world and only 2% of its population is foreign born as a result. The U.S. has always been a major destination for immigrants, and our foreign born population stands at 17%. Without such a high number of immigrants, the U.S. would likely look more like Japan demographically.

These immigrants have helped population growth even as birth rates have fallen, and over time will contribute even more. The Census Bureau projects that immigration will overtake domestic births as the primary driver of population growth by 2030. As new immigrants outpace new births, foreigners have increased their share of the labor force as well. Foreign born individuals accounted for 17% of the labor force in 2017, a significant increase from 1990 when they made up only 8% of the labor force.

At a time of heated political debate surrounding immigration, it is important to note these long term benefits. As fertility rates continue to fall, our economy is going to need more and more foreign workers in order to maintain the size of our labor force and to keep a healthy pace of economic growth. We may otherwise see growing strains over time similar to those in Japan.

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