Monday, August 13, 2012

On demographics as only one starting point

I've intended for some time comment upon Cam Hui's Seeking Alpha "America's 'Trente Glorieuses'"?. It makes a fairly common argument: the United States, by virtue of its particular demographic structure, enjoys a significant advantage over its various peers and competitors.

In the post-war period starting from 1945, France and much of Western Europe experienced a virtual cycle of rapid economic growth lasting thirty years called les trente glorieuses. Economic growth was driven by the combination of rising working age population, incomes and standards of living. This is known as a "demographic dividend".
America may be on the verge of its own trente glorieuses as it experiences its own demographic dividend, driven by the combination of a rising working age population as the children of the post-war Baby Boomers grow up and enter the work force and immigration.
The American age demographic profile is substantially better than its major trading partners. Despite the angst over dependency ratios, or the ratio of workers to retirees, the expected increase in American workers means that American dependency ratios are likely to stabilize in the decades to come, whereas those of many other countries continue to decline – which will strain the pension system and national finances.
America's relative youthfulness compared to trading partners isn't just a product of its higher birthrate, it is also a function if its willingness to accept immigration. The United States and Canada are in the minority of major industrialized countries that openly accept immigrants.
Indeed, BBVA research (via Business Insider) titled 'Immigrants rejuvenate the United States' show that without the influx of Mexican immigrants, the demographic of the U.S. would be much, much older[.]
One of the graphics used to illustrate the article is this one, showing projected growth in the 15-to-64 working age demographic in the half-century to 2050.

Labour force growth, 2000-2050

My main quibble with this graphic in that it doesn't break "Europe" down into more meaningful national units--Britain is not France is not Germany is not Spain is not Poland, continent-wide convergence in demographic trends being far from complete--but otherwise, yes, I buy the points being made. The United States does stand out among high- and middle-income countries for its demographic profile, characterized by high rates of natural increase and substantial net migration in a population that's already young. If most of the United States' peers and competitors have populations aging much more rapidly than the United States, with obvious consequences for the relative availability of labour and costs for supporting non-economically productive populations, the United States has a decided advantage. Overall, as the Economist noted, fertility in Europe has fallen after a brief recovery in the past decade. The other countries cited by Hui as major competitors--China, Korea, Japan--all seem to be on track for ultra-low fertility, while many other economic competitors are on track for, at best, replacement-level fertility.

(Parenthetically, it should be noted that the United States is not completely unique. For instance, Behind the Numbers' Carl Haub notes that American fertility has fallen slightly recently in response to the recession, the Economistadding by noting that TFRs in France and England have been rising for some time and are now higher than the United States' figure. These two exceptions don't change the overall picture that much.)

What's my problem with Hui's analysis? It's two-fold.

On one level, I find his use of the term Trente Glorieuses to be misleading in reference to the sorts of demographic changes described. In France at least, the Trente Glorieuses saw a thorough transformation of the structure of France's population, the low growth that characterized the Third Republic being transformed by the combined effects of the strong baby boom and high levels of immigration and intensified rural-to-urban migration. The basic trends afoot with France's demographic structure changed completely, in other words. Hui, in contrast, is describing a situation where the basic underlying trends of the United States' demographic structure remain unchanged, where there the only transformation lies outside the United States, specifically in other countries' developing more disadvantageous demographic structures.

My deeper problem with Hui's analysis is that it takes simple numbers to mean too much. Hui is quite right to point out that the continued growth in the United States' population of working age has the potential to offer it a significant advantage over other upper- and middle-income countries, but will this potential necessarily be realized? "Demography matters" is the name of this blog, yes, but no one posting here has ever argued that the demographic structure of a population determines everything about a given population's economic future. Governments can craft policies to take advantage of demographic sweet spots or not, can craft policies which deal which deal successfully with particular demographic issues or not.

* The rapid transition of China over the past generation from high to below-replacement fertility rates did give China significant economic advantages in the context of the pro-market policies of Deng Xiaopeng and his successors, for instance, but was the embrace of these pro-market policies solely determined by China's demographic transition? Clearly, no. China could have enacted the one-child policy but not enacted pro-market policies, for instance.

* Is it imaginable that, in the future, the United States might fail to take advantage of its continued demographic advantages while its peers and competitors might make better use of their more limited resources? Clearly, yes. Most of the countries of the Soviet bloc squandered, for reasons of ideology and power politics, their own demographic sweet spots.

* For that matter, could these population projections be off? It's conceivable. In the longer term, fertility rates could change significantly and lead to slow change--they could fall in the United States and rise in Germany, as norms and policies changed. In the shorter term, immigration could induce significant changes, as the experience of Spain over the past decade suggests. (How likely might these shifts be? They're in the realm of the possible, at least.)

Demographics can only ever be a starting point, only one element in a complex array of variables which all interact with each other. It's an important element, yes, but it shouldn't be read as the determinative one.

7 comments:

duanemiller said...

I enjoyed this post, thank you.

I want to specifically respond to your second possibility, that the USA will squander this opportunity. I am a US citizen who is employed and well-educated (close to a PhD), in his mid-30's, married with three children. I have come to the conclusion that the policies of the federal government are antagonistic towards traditional nuclear families. When I look at the huge amounts spent on Medicare, and the dwindling amounts spent on public education for children (like mine, aged 8, 5, and 1), I honestly look abroad when I consider future options (I am fluent in Spanish and Arabic, which helps).

My intention is not to elicit sympathy or make a political point, but rather to say that according to my own experience, I do think what whatever demographic advantage the USA may have will probably be squandered.

Dan said...

If a growing workforce were the primary factor for economic success, India would have grown much faster than China these last several decades.

Indeed China, with a tight clamp on population growth, has been overwhelmingly the more successful of the two.

It matters enormously what the characteristics of the workers are, and not merely how many there are.

Do the new Americans have as much human capital as those that came before them? In many cases the answer is no.

Jesse said...

Demographics play a huge role in determining the economic success and power of a country. Under similar conditions and policies a country with a large and growing population will outperform a smaller country in economic terms. The large country will have more people available for doing research and development, they will have a larger market, they will have more workers. Of course the opportunity that comes from a large and growing population can be squandered by bad policies but without that population the opportunity doesn't even exist.

Jesse said...

If you look at the decades when the developed countries were doing the best economically, it was back in the 50's and 60's when the population was younger and was growing faster. The growing market and innovation that came with that growing population was a huge asset. The relatively high number of workers to retirees was very beneficial, as was the innovative nature of the younger population. Now the US, Japan, and Europe are becoming trapped by their slow population growth. We don't have enough workers to support all of the benefits that were promised and there isn't enough population growth on the horizon to get us out of the situation. Japan has had the slowest population growth and is now in its second last decade and Europe is entering its first. I fear that will be the fate of all countries that don't have a growing population.

Jesse said...

The comment above should say "second lost decade" rather than "last".

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