Tuesday, March 27, 2012

Demographics of Aging Workforce as Indicator of Slower Future Growth, Deeper Recessions

According to two economists, James Stock and Mark Watson, in the future, U.S. growth will be slower, recessions will be deeper, and recoveries will be weaker because of demographics--in particular because of the plateau in the female labor force participation rate, and the aging of the U.S. workforce. In the draft of their conference paper for the Brookings Panel on Economic Activity--"Disentangling the Channels of the 2007-2009 Recession," they write:
The main conclusion from this demographic work is that, barring a new increase in female labor force participation or a significant increase in the growth rate of the population, these demographic factors point towards a further decline in trend growth of employment and hours in the coming decades. Applying this demographic view to recessions and recoveries suggests that the future recessions with historically typical cyclical behavior will have steeper declines and slower recoveries in output and employment.
Derek Thompson, writing for The Atlantic, says that another way of looking at what Stock and Watson found is that "As 80 million Boomers move into retirement, a smaller share of our population will be working ... and a rising share will be seeking increasingly expensive medical attention from the workforce that is left over. That adds up to a less dynamic economy." Thompson does hope "that the transition to a service economy will allow older people to work longer than they have in the past," and also notes that there are low-hanging solutions to creating more working Americans, including changes in immigration policy, housing policy, and reducing costs of education and medicine.

Source: The Atlantic "Gray Nation: The Very Real Economic Dangers of an Aging America" (March 26, 2012)

No comments: