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Home Publications Op-Eds & Columns The Return of the Demographic Crisis

The Return of the Demographic Crisis

Dean Baker
Al Jazeera English, June 13, 2012

See article on original website





Suppose that we do get to a point where economies are again at full employment, it’s still difficult to see why a shortage of workers will pose a serious problem. The 130 million jobs in the U.S. economy carry varying degrees of importance. Some, like nurses, teachers and firefighters, are very important to the economy and society. Others, like the midnight shift at a convenience store are considerably less important.

If we get to a situation in which labor is in high demand then the wages of nurses, teachers, and firefighters will rise relative to the wages of people working the midnight shift at convenience stores. The result will be that convenience stores may not be able to find workers for the midnight shift and therefore may have to close down from midnight until 5:00 a.m.

There are in fact tens of millions of jobs like the midnight shift in the convenience store. If we get a tight labor market then we might see hotels that only clean guest rooms every other day. We may see more cafeterias and less sit-down restaurants. Fewer clerks would be available to provide service in department stores. Cabs will become harder to find in major cities. Fewer hotels and restaurants would offer valet parking. Are you scared yet?

This is what happens as an economy grows. Workers move from less-productive jobs to more-productive jobs. This is the reason that we have relatively few people employed in agriculture. Workers are more productive in manufacturing or the service sector, so they left the agricultural sector.

As workers’ productivity increases they can easily support a large population of retirees. Fifty years ago there were five workers for every retiree, today the ratio is less than three to one. Yet on average we enjoy far higher living standards today than we did 50 years ago. This is due to the fact that productivity is more than 2.5 times as high as was 50 years ago. This is likely to be the same story going forward.

That is why there is no reason that we should be scared by the prospect that the ratio of workers to retirees is projected to continue to decline. If productivity grows at a normal pace we will able to have a lower ratio of workers to retirees and still see a rise in living standards for both workers and retirees.

It is especially entertaining to hear the claim about a demographic crisis in China. China has been seeing productivity growth of close to 8.0 percent a year as workers leave relatively unproductive work in agriculture and take up much more productive employment in industry. At this rate, productivity is doubling every nine years or so, meaning that over a generation an average worker’s output will have increased fourfold. This means that even if there is a sharp fall in the ratio of workers to retirees in China both will still be able to enjoy much higher standards of living than the preceding generation.

The other part of this story is that the only practical way to prevent the aging of the population would be to have more children. This would impose an enormous burden on the infrastructure and natural resources, especially given the problem of global warming. Insofar as the aging  of the population is associated with less crowding, we will be seeing gains that for the most part will not be picked up in standard economic measures: such as less crowded transportation, fewer traffic jams, easier access to sites like beaches and riverfronts.

In short, the aging of the U.S. and world populations should be viewed as overwhelmingly positive. There is no reason to fear that it will impoverish either our parents or our children.



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