The fact that millennials are not procreating at the same rate as earlier generations may ultimately hinder economic growth for over 10 years.
Some millennials without children may not be deterred by this, as they are squandering the money that would have been used for daycare on opulent trips, flashy boats, and other pleasures that are common among DINKs (dual income, no kids), or couples who make two salaries but do not have children.
However, experts told Business Insider that such investment won’t be sufficient to counteract the long-term negative effects of a declining population on the economy, particularly because the US birthrate has fallen dramatically over the past 50 years.
America’s birth rate plummets: The economic implications of declining fertility trends
According to the Centers for Disease Control and Prevention, there were only 11.1 births per 1,000 people in 2022. In 1960, there were 23.7 births for every 1,000 people, a 53% decrease from the current record.
According to global economist James Pomeroy of HSBC, the scarcity of infants has been especially severe since the outbreak. He calculated that the country’s birth rate is currently declining by about 2% per year, as opposed to experts’ initial predictions that it would rise in 2023.
Long-term “extremely low” population numbers could result from this, placing the US in danger of following China, where the government is providing financial incentives to encourage families to have more children due to a severe population decrease.
This puts the US at long-term risk of “extremely low” population levels, similar to nations like China, whose population drop is so severe that the government is offering financial incentives to encourage families to have more children.
“What you’re talking about is these birth rates dropping very, very low levels, which over time has huge impacts on the economy,” said Pomeroy. “And then by the time you get to 2030, you’re talking about a birth rate that is wildly different to what was in the assumptions made at the beginning of the decade.”
Demographic dilemma: The looming economic consequences of declining birth rates among millennials
According to Pomeroy, the effects of millennials having fewer children would probably be harsher than those of ageing boomers, with the worst effects possibly occurring 10 to 15 years from now. He brought up Japan, whose 1990s birth rate was comparable to that of the United States. Its workforce began to shrink, and the country had several years of negative GDP growth, which is when its economy saw the “worst bit” of growth approximately 10 years later.
Former White House economist Todd Buchholz estimates that the declining birth rate in the US might reduce GDP by 1-2 percentage points annually. He calculated that over several decades, that would be the same as eliminating the predicted productivity gains from AI or reducing the US growth rate by a third. Pomeroy cautioned that in the worst-case scenario, GDP growth may plummet by 3-4 percentage points.
There will be fewer workers in the economy if fewer Americans are born.
“You find it more difficult to find somebody to cut your hair, do your nails work on, set up the X-ray machines at the hospital,” he continued. “So the sheer decrease in the number of people…becomes a problem.”
It will also be more difficult to absorb the majority of Social Security benefits due to declining birth rates, especially as baby boomers get closer to retirement. It is projected that the baby boomer generation will reach a “peak burden” on the US economy in 2029 when they will all be 65 years of age or older.
It will be quite difficult for us to figure out how to pay for retirement. Medicare and Social Security, which provide seniors with promised retirement benefits, will run massive deficits, Buchholz continued.
He predicts that, if the birth rate doesn’t rise quickly, there will eventually be two full-time employees for every retiree, as opposed to the roughly 20 that existed in the 1930s.
He declared: “That is just not sustainable.”
Downward spiral
Persuading people to have children is difficult.
Both Pomeroy and Buchholz pointed out that once the birth rate in an advanced economy begins to decrease, it usually keeps going down. That is the situation in China and Russia, two nations that have long struggled with low birth rates and are currently constrained by demographic concerns.
Encouraging people to have children through government initiatives may be one strategy to increase the birth rate, or at the very least stop further declines. Pomeroy said that increasing the number of accessible homes can help lower exorbitant housing costs, but it will probably take decades to accumulate enough inventory to satisfy demand.
A cultural shift in the way we talk about children may be the most crucial thing to persuade people to have more children, according to Buchholz. He brought up the conversation among millennials about the potential savings of not having children—roughly half a million dollars, based on a CNBC estimate.
The decision to have children is influenced by rising expenses in the US for housing, healthcare, and education among younger generations. Furthermore, the decision isn’t made any simpler by existential uncertainty resulting from issues like climate catastrophe or technological advancements like AI
“I think it’s a net negative to have fewer children when the choice is between having a child and investing in a new Sony PlayStation,” Buchholz stated to Business Insider. “Now it seems crude, vulgar, and inhumane to admit that people do, but people will openly say, having a child is expensive.”
To the frustration of their detractors, many DINK couples claim they have no regrets about their lifestyle decisions; nonetheless, this carefree mindset may be the root of the issue.
“At the end of my life, I was surrounded by a machine tethering me to oxygen, a nurse, and a lawyer. That seems like a very dreary way to end life,” Buchholz said. “And so I think the narrative has to change. So it’s not about the fear of missing out and only being able to live once. People who have children feel that they live more than once.”
In conclusion, the millennial generation’s dropping birth rates present a serious threat to the US economy going forward. Wide-ranging and deserving of careful examination, the consequences of this demographic change range from slower GDP growth to increased pressure on social security institutions.
Proactive actions and creative solutions will be crucial as we negotiate these difficulties to guarantee a prosperous and sustainable future for future generations.
(Tashia Bernardus)