Effects of historically low birth rate will reverberate for years to come

Effects of historically low birth rate will reverberate for years to come
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The U.S. birth rate is now at its lowest point in 30 years, a finding that contains a glimmer of good news but is also packed with significant implications for Social Security, Medicare and how we must cope as an aging society.

First, the upbeat part. The birth rate for teenagers aged 15–19 declined by 7 percent from 2016 — a record-low for this age group. It has plummeted 55 percent in the last decade and 70 percent since 1991, its most recent peak.

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This is a welcome development. Children born to teen mothers are more likely to drop out of high school, enter the foster system, end up in prison and use social insurance programs.

 

But long term, the U.S. population is not renewing itself. In 2017, the Total Fertility Rate (TFR) — which estimates the number of births each woman, on average, is expected to have over her lifetime — was 1.76 births per woman, well below the replacement level (2.1) needed to maintain a stable population.

To put this in perspective, the TFR hovered above 3.0 in the early 20th century; declined to replacement levels of about 2.1 in the 1940s; reached a peak of 3.7 in the post-World War II baby boom; and then declined rapidly to relatively stable low levels in the 1970s. 

Declines in fertility have accelerated since 2010 — raising questions about the economic and public policy implications if this latest trend continues. 

A smaller-than-expected cohort of young adults has a surprising side effect: It raises the proportion of the total population that is elderly — thereby accelerating population aging. Between 1900 and 2015, life expectancy at birth in the U.S. rose by a staggering 30 years.

The U S is now officially an “aging society,” one in which the proportion of the population over 65 exceeds that under age 15. Until recently, the major forces driving the aging of our society have been the remarkable increases in life expectancy cited above and the impact of the post-war baby boom.

Both events dramatically swelled the number and proportion of older persons. However, given recent trends in birth rates, we must now add sustained low fertility rates to the equation. If fertility does not soon rise to 2.0 (the level assumed in federal population projections as the ultimate birth rates expected for the remainder of this century) then the policy challenges driven by population aging will become even more urgent. 

Take, for example, Social Security and Medicare. Both programs impose heavy fiscal burdens on society. Much of this cost is workforce related and paid through taxes tied to earnings and income.

The significant reduction in fertility in the U.S., if not offset by enhanced immigration or greater worker productivity, puts these programs at risk. But productivity growth over the last decade has lagged the improvements seen in previous recoveries, and the prospects for increasing immigration seem dim. 

We can begin to counter these very important risks with several steps. 

First, we must strengthen the workforce. Employers can retain older workers through increasingly flexible work arrangements and enhanced re-training.

Second, changes in Social Security eligibility should be put on the table. The 5.4 year increase in life expectancy at birth and 2.9 year increase in life expectancy at age 65 since the latest amendments of the program in 1983, provides ample justification to raise the early and full Social Security retirement ages.

The Commission on Fiscal Responsibility and Reform (Simpson-Bowles) recommended that the full retirement age be gradually raised to 68 by 2050 and to 69 by 2075; and that the early retirement age be raised to 63 and 64, accordingly.

In a separate analysis, our MacArthur Foundation Research Network on an Aging Society concluded that an early retirement age of 66.5 and a full retirement age of 69.4 are justifiable from rising life expectancy alone.

A major reset of the program is overdue and would protect the solvency of the program while incentivizing individuals to remain in the workforce longer.

Rapidly declining fertility rates across the globe are generally viewed as a sign of progress, but they come with unintended consequences. This recent trend in accelerated reductions in birth rates in the U.S. reminds us that generations are fundamentally linked to each other and that policymakers must be aware of these linkages before embarking on policy changes designed to influence only one demographic of our population.

There is no better example of this than the one-child policy in China that had the desired effect of rapidly reducing birth rates, but which subsequently led to an unprecedented aging of their country that policymakers are still grappling with.

Rapidly declining fertility today matters not just because of its immediate impact on our economy, but because of its reverberating effects on every aspect of our society for the remainder of this century.

John W. Rowe is the Julius B. Richmond professor of Health Policy and Aging at the Mailman School of Public Health at Columbia University. S. Jay Olshansky is professor of epidemiology at the School of Public Health at the University of Illinois at Chicago. Dana P. Goldman is the director of the Leonard D. Schaeffer Center for Health Policy & Economics and distinguished professor of public policy and pharmacy at the University of Southern California. Rowe, Olshansky and Goldman are members of the MacArthur Research Network on an Aging Society.