WACO, Texas – The national economy continues its slow jobs recovery, but unemployment, underemployment, and long-term unemployment are still major problems in many parts of the United States.
We are only now getting back to pre-recession job levels, and the economy should have added many more new positions to absorb expansion in the labor force. In the midst of this oversupply-of-workers situation, it’s easy to forget that underlying demographic patterns are working in the opposite direction and the problem in the decades to come will likely be worker shortages. In addition, the older population will be expanding rapidly in a relatively short period of time, leading to substantial challenges for social services (such as Social Security and Medicare).
The key factor in the overall aging of the US population is the baby boom generation, which includes persons born between about 1946 and 1964. The oldest began reaching retirement age in 2011, and the peak boom years with the largest numbers will be reaching 65 in about 10 years. There will be millions of jobs to fill, and it may be difficult to fill them.
A recent study by Georgetown University’s Center on Education and the Workforce estimates that there will be a shortage of five million workers with the necessary education and training in the United States by 2020. In addition, the study reported that the post-secondary education system can’t turn out enough graduates to fill the gaps.
Certain fields and industries are likely to be hit particularly hard as baby boomers retire and there are fewer people of prime working age. In health care, for example, a physician shortage is looming, with the numbers of doctors practicing in some specialties falling markedly over time as the baby boomers retire. (Compounding the problem is that current uncertainties are discouraging bright young Americans from pursuing medical careers, but that’s a topic for another day.) The education sector is also likely to see shortfalls, particularly in smaller communities.
Another consideration with an aging population is something demographers call a “dependency ratio” which basically measures the numbers of young people (less than 18) and older people (65-plus) compared to the number or working-age persons. An extremely high dependency ratio could theoretically be a bad thing from an economic perspective, with fewer working-age people generating economic activity to support more non-working people. The result could be declining quality of life, as worker shortages curtail the capacity for economic growth and prosperity while the population continues to grow. As the baby boomers age, the old-age dependency component will naturally rise, from 21 in 2010 to 35 in 2030 according to a study by the US Census Bureau. Adding in the youth component, the Census Bureau is projecting that there will be 75 people who are “dependent”—less than 18 or over 65—per every 100 of workforce age in 2030. I have heard some folks getting quite concerned about this phenomenon and the growing burden on working-age Americans to generate enough business activity and tax receipts to maintain standards of living. However, it is important to note that total dependency would actually remain below the levels of the 1960s and 1970s (when the baby boomers were in the youth segment of dependency). In addition, productivity has been rising for many years and will mitigate the issue to some extent.
Looking at the situation from an international perspective, the United States is aging much slower than most other developed countries. In 2012, the U.S. was among the youngest of countries studied by the Census with just under 14 percent of the population (about 43 million people) aged 65 or over; only Russia was lower. By 2030, more than 20 percent of Americans will be 65-plus (about 73 million people), with 21 percent by 2050 (83 million people). While this increase in the older population is significant, it still leaves the United States younger than any of the other nations studied. By 2050, about 40 percent of people in Japan will be 65 or older, and the proportions in Germany, Italy, Spain, and Poland will all exceed 30 percent. Most nations will experience large percentage increases between 2030 and 2050, while the US proportion barely changes (since the baby boomers will already be populating the group in 2030).
Looking at the world’s four largest countries in terms of population (China, India, the United States, and Indonesia) tells a slightly different story. China and India both have much larger populations older than 65 given their larger overall sizes, but the proportions of older people are smaller. Over time, China’s percentage aged 65 is expected to grow to almost 27 percent in 2050, surpassing that of the United States (21 percent). India is projected to remain relatively younger, with less than 15 percent age 65; Indonesia is likely to be slightly higher, but still less than the United States.
Changing demographic patterns and the aging of countries around the world will lead to significant challenges ranging from funding social services to meeting health care needs. The aging of the baby boomer generation will speed up the process of change in the United States, with a major shift over the next 15 years. As millions of people retire, it will become increasingly important to ensure that the coming smaller workforce is well equipped to be productive through improving education. It is also essential that innovation and technological change continue to enable our success. Future standards of living depend on it.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.