[REN #856] U.S. Economy: Do We Need More Babies?

U.S. Economy: Do We Need More Babies?, Real Estate News for Investors Podcast Episode #856

The U.S. has a population problem and it’s not because we have too many people. The nation’s birth rate is declining. It’s half of what it was when the baby boomers were born, and is currently at a record low — so low, that the incoming generation can’t replace the outgoing one. According to some social scientists, that could have a serious impact on our future — both socially and economically.

Record Low Birth Rate in 2018

The CDC issued a report a few weeks ago that shows the U.S. birth rate hit a record low of 1.73 in 2018. (1) The birth rate is used to determine whether the incoming generation is producing enough babies to replace the outgoing generation. It’s also known as the total fertility rate or TFR. So the TFR for the newest generation, known as Gen Alpha, is the lowest it’s been since record keeping began in 1940.

Most experts say that 2.10 births for each woman of child-bearing age will create enough able-bodied people to replace the older generation. The Baby Boomers were almost double that amount. They hit a peak TFR of 3.77 in 1957, during the height of the post-World War II baby boom.

The birth rate then took a nosedive during the birth years for Generation X, with a low point of 1.84 in 1980. It then flirted with a TFR of 2 for the Millennials, and rose as high as 2.07 in 1990 for Generation Z.

What’s Causing the Low Birth Rate

Experts can’t name any one reason for the decline in birth rates. They believe it’s due to many interrelated factors like the availability and use of contraception, a woman’s desire to postpone childbirth in pursuit of an education or a career, and the social acceptance of a woman’s desire to do so, along with other factors like the cost of having children including the lack of affordable childcare and paid maternity leave for women in the workforce.

One positive aspect of the lower birth rate is a drop in teen pregnancies. They are currently at a record low in the U.S.

Why Nations Need Babies

Whatever the reason for the decline, experts say there will be consequences down the road. They say it’s more likely to impact future generations, although we may already see trouble on the horizon. A dwindling population means there will be fewer people entering the workforce to replace those who are retiring and support the economy. If a labor shortage grows worse, we could also see slower economic growth. We have been experiencing the impact of a labor shortage in the construction industry. The Great Recession drove a lot of people out of the construction workforce. That left many builders competing for workers. That often means that builders offer higher wages to attract them, which drives up the cost of housing and other projects.

Other economic impacts include fewer people to pay taxes which support government programs, like Social Security and Medicare. Business Insider cited a report by the Economic Innovation Group last year that says 41% of U.S. counties are experiencing serious population declines, and that by 2037, 66% of them will have fewer working-age adults than they had in 1997. And that’s despite an overall increase in population.

The baby boomers are leaving the workforce, and living longer. That’s taking a toll on social services that need tax dollars, because more people need those services and fewer people are paying into the tax system.

Social scientists say that kind of imbalance could trigger a more serious decline in rural areas, especially if younger people decide to leave for more prosperous areas. The article says, “Demographic losses would reverberate through housing markets and municipal finances, prompting a drop in home values and local tax revenue that helps pay for education and infrastructure.”

The lower birth rate also results in fewer people to care for an aging population. Business Insider wrote about this topic in 2016 and said, “We are beginning to see a substantial imbalance in the ratio of elderly dependents to working-age people, which will only intensify over the coming decades.” That could also impact the nation’s workforce if younger folks spend a lot of time caring for the elderly.

Lynn Westphal of the Stanford Fertility Preservation Program told Yahoo Lifestyle, “People are living longer and having smaller families. In the past, you had multiple children who could help care for aging parents. If that burden is just on one child, it’s definitely going to create a different dynamic. But I don’t think we really know the long-term impact it’s going to have.” (2)

Immigration Is Also Down

A drop in immigration is also affecting population growth. Business Insider says that President Trump’s immigration policies are contributing to that slowdown. (3) It says that in 2019, the net population increase from immigration was just 200,000. That’s a 70% drop from 2018. Will Frey of the Brookings Institution said in the article, “The wild card is immigration. The reason we haven’t had a declining labor rate is because we’ve had strong immigration rates over the last three decades.”

Immigrants also move to smaller markets, at the height of their working years, so they help support those areas with their taxes. According to Business Insider, they also start companies at twice the rate of people born in the U.S. which also helps the local economies.

The group that did that study also proposed a remedy for rural areas that may experience a decline. It suggested the creation of a “heartland visa” program that would guide immigrants to areas that need working residents. 

Links:

(1) CDC Birth Rate Report

(2) Yahoo Article

(3) Business Insider Report

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