Declining fertility is already harming the labor market

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Demographers have been warning about slow population growth and declining labor force levels in significant parts of the country for quite some time. Their projections are now starting to come true—and with them the consequences.

For example, it used to be that there were almost always more people being born than dying in communities across the United States, so populations would just naturally grow. In fact, demographers referred to this kind of growth as a “natural increase.” Only a few outlier areas, like Pittsburgh, Pennsylvania, had more deaths than births. But last year, two-thirds of American counties had more people who died than were born in them. A couple years ago I noticed that the Census Bureau renamed their natural increase field to “natural change.”

Weak demographic growth has serious consequences for the economy, because you can’t add any jobs without the workers to fill them. Places whose labor force is shrinking have essentially reached peak employment. They’ve reached the end of job growth.

While parts of the country like Texas, Florida, and Arizona continue to see large population growth, much of the nation, including the 23-state region I call the “Old North”—the Great Plains, Midwest, and Northeast—have much weaker or even negative demographic trends.

Take my home state of Indiana, which actually has one of the better population growth showings in the Midwest. The Indiana Business Research Center (IBRC) recently published forecasts showing that population growth in the state has been decelerating since 1990, and will continue to decline into the 2050s, when the state’s population will effectively be stagnant.

Indiana population growth by decade, 1900-2060. Source: Indiana Business Research Center

Much of what population growth will occur is projected to be in the metropolitan Indianapolis area, with 67 out of Indiana’s 92 counties projected to actually lose population between 2020 and 2050.

As bad as this sounds, it actually understates the economic impact. Because the population is also aging, a higher share of the population in 2050 will be seniors who are out of the labor force. A 2018 study by the IBRC projected that between 2015 and 2045, the state’s labor force would grow by less than 1%: 70 of the state’s counties were projected to begin seeing declining labor force levels as soon as 2025—next year.

Outside of metro Indianapolis and a few other pockets around the state, the era of job growth in Indiana is effectively over. And there’s nothing unique to Indiana here. In fact, it actually had the highest population growth in the Midwest last year and was in the top half of all states for its growth rate. These demographic trends will hit some states around the country even harder.

This has profound implications for public policy. For one thing, it means that, in some places, all policy attempts to create jobs will fail. For example, a Republican state with these demographic trends that decides to cut taxes on “job creators” in order to stimulate job growth will discover that all they’ve done is give away revenues. While individual businesses can perhaps be subsidized to locate in the state—and there may even be a case for playing in the economic incentives game as a result of this decline—business tax cuts won’t result in net job growth overall. Again, you can’t add jobs without workers to fill them.

There are other implications of this. With falling birth rates at the national level, labor markets will be tighter all over the country. Places with an available quality labor forces will attract the jobs to put that labor to work. This means the ability of corporations to, for example, threaten to boycott states because of conservative social or other policies will be much reduced. We’re already starting to see this. The passage of socially conservative legislation in Texas, for example, hasn’t stopped businesses from pouring into the state. Texas has the labor force and a growing consumer market, and so business has to be there. Even Old North states will benefit from increased leverage in this regard.

States could try to change their demographic trends to boost their labor force. But this appears to be very difficult to do. Pro-natalist policies around the world have failed to do much to boost birth rates. Almost all of the high growth states are in the Sunbelt. It’s not obvious what an Old North state could do from a policy perspective that hasn’t already been tried.

In terms of attracting people to move to particular states and regions, again, a lot has already been tried. The one cold northern state that was able to buck the trend to attract a lot of residents was North Dakota—but that was because it had an oil boom. Public policy can’t produce one of those.

Also, with demographics weakening at the national level, there aren’t enough people for more than a limited number of places to really profit from outsiders moving in. There was an old quip from years ago that, “there aren’t enough yuppies to go around to save Detroit.” Today, with a slowly growing national population, there aren’t enough people of any type to reflate these states. Migration is a zero-sum game. There can only be a handful of hot destinations like Austin or Nashville.

And immigration is no solution either, despite what many people say. As of 2022, there were over 46 million foreign-born people in the U.S. The Biden administration has let millions of migrants enter beyond those figures. Yet it hasn’t changed the demographic trends for most of the country, even if you assume every migrant is an unalloyed positive for a community. How many more immigrants would we have to admit before downstate Illinois starts growing again, for example? Even tripling the current levels of immigrants in some of these places would not be a game changer in terms of the number of people living there.

America has been built around growth. Much of what we do, from new business expansion to urban planning, is predicated on growth and how to stimulate more of it. But when much of the country starts to have a shrinking labor force, job growth becomes impossible in these places. This used to be an exceptional event, but it will become the norm in coming years.

Adjusting to this fact will require a big psychological change and a major revisitation of public policy. For example, perhaps rather than thinking about job growth, we should be thinking more about how to increase the health of our workforces and skill levels of our existing workers, so that our places can grow through increasing the quality and pay, rather than quantity of, their jobs. Regardless of the actual solutions, a declining population represents a profound challenge to the current way of thinking in economic development policy. And it’s already upon us.

Aaron M. Renn
Aaron M. Renn is a senior fellow at American Reformer. His writing can be found at www.aaronrenn.com.
@aaron_renn
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