A smaller working-age population could mean less growth
How much an economy can produce depends to a large extent on the number of persons who are old enough to work but not too old to work. One can try to make sure there are employment opportunities, but obviously you need workers. The graph shows two measures of the “working age” population for the United States, based on different age spans. The 15- to 64-year-old range covers everyone who could work up to the hypothetical retirement age of 65. The 25- to 54-year-old range excludes the youngest (likely still in some form of schooling) and the oldest (who may have already entered some form of retirement). As the overall population of the U.S. increases, these two measures ought to increase as well. But the second measure lately has not. Why?
It all boils down to the age composition of the U.S. population.
- The large cohort of the Baby Boomers is now almost all older than 54, so would not be included in the 25- to 54-year-old age range.
- Fertility has decreased, so there are fewer younger people replacing those who are retiring from the workforce.
- Immigration can compensate for lower fertility, as immigrants are typically of working age, but immigration doesn’t appear to be strong enough to make up the difference.
With about a 10-year delay, the number of 15- to 64-year-olds should also flatten out, with far-reaching economic implications: The U.S. economy is unlikely to be able to sustain the growth of past decades without the usual growth in its working-age population.
How this graph was created: Search for “working age population age” and the two series should be visible. If not, use the side bar options to narrow down your choices. Check the two series and click “Add to Graph.”
Suggested by Christian Zimmermann.
View on FRED, series used in this post:
The overall U.S. population is aging. As the top graph shows, the percent of the population between 16 and 64 years of age (generally considered working age) has been declining since about 2007. At the same time, the percent of the population 65 years and older has been increasing. From 2007 to 2014, the working age population as a percent of the total population fell from 64.9% to 63.6%, while the 65+ population rose from 12.5% to 14.4%. As the working age population shrinks relative to the total, the dependency burden (the ratio of dependent young and old to those of working age) increases.
The aging U.S. population is explained mostly by differences in fertility rates before and after 1970. Although FRED data begin only in 1960, research estimates that the U.S. fertility rate increased after World War II and peaked around 1960. This period of high fertility is the “Baby Boom.” As the bottom graph shows, starting in 1960 the rate fell dramatically—from 3.6 births per woman to below 2—and has lingered around 2 since. With a fertility rate below 2 births per woman, the flow into the working age population is lower than the outflow from the aging and retirement of the Baby Boomers, which contributes to the fall in the working age population ratio.
Note: The top graph includes OECD data, which use 15-64 years as the working age population; U.S. data typically use 16-64 years.
How these graphs were created: For the top graph, search for “working age population” and choose the series with an annual frequency. In the “Add Data Series” field, search for and select “Population, Total for United States.” Use this series to modify data series 1: In the “Edit Data Series 1” / “Create your own data transformation” section, insert the formula (a/b)*100. Then add the “population ages 65 and up” series with an annual frequency, with units set as a percent of total. Move the y-axis position to the right and adjust the date range to be between January 2000 and January 2014. For the bottom graph, simply search for and select “US fertility rate.”
Suggested by Maximiliano Dvorkin and Hannah Shell