The baby boomers lulled Americans into a false sense of security.
As those born between 1946 and 1964 entered the labor force and helped grow the productive capacity of the U.S., concerns about the ratio between working adults and retirees were minimal. In 1980, there were 19 U.S. citizens over 65 years old for every 100 Americans. But recently there has been a rapid shift in this “old-age dependency ratio.”
In 2017, there were 25 Americans 65 years or older for every 100 people. That ratio will climb to 35 retirees per working adult by 2030 and 42 retirees for everyone under the age of 65 years old by 2060.
The implications of this demographic shift are significant. Social programs such as Medicare, Social Security, state and local retirement funds, etc., are based on a relatively large number of working adults supporting a much smaller number of retirees. Better healthcare resulting in longer lifespans coupled with increased income expectations of retirees have created a smoldering demographic fire which will erupt over time.
Demographers, economists and policymakers have suggested short-term remedies. Raising the age of retirement including the social security benefits, the age at which individuals are eligible for Medicare and bumping up retirement requirements for federal, state and local workers can postpone this pending economic calamity.
These remedies sound good in theory, but in fact they are difficult to achieve. One need only examine the opposition of public employees to such changes even when the impact of a change in pension policy effects future employees rather than existing ones. This recalcitrant thinking persists even though some taxing authorities are currently using more than 50 percent of their revenue to pay for retirees’ pensions.
Americans might learn something about its own demographic time bomb by looking at a country that has experienced it such as Japan. In 2025 when the U.S. will have 33 elderlies for every 100 working aged adults, the ratio in Japan will be much higher with 58 elderlies for everyone under 65.
While increases in life-expectations has added to Japan’s demographic problems, the major cause has been the lack of young people. Low birth rates combined with an insular society that traditionally shunned immigration has set up the perfect demographic storm where the demands from an elderly population are rapidly outpacing the productive capacity of the younger population. Even increased productivity per worker, created by advanced technology, cannot offset this significant “old-age dependency ratio.”
Unlike Japan, the United States has a safety valve that can offset our own demographic Armageddon and that is immigration. America has a rich historical tradition of immigration. Notwithstanding serious concerns some have about the negative impact that immigrants can have on a country, Americans have historically welcomed arrivals who worked in jobs that often went, and still go, unfilled. This expanded the country’s productive capacity and for many years helped offset the old-age discrepancy.
America’s current debate about immigration should be argued more in terms of the future productive capacity of this country relative to the demographic changes that are inevitably taking place. If we do not allow immigrants to enter at a reasonable rate, thereby offsetting an aging population, the problems that impact Japan today will be ours tomorrow.
Clearly the arguments around who and what kind of immigrants should be allowed to join America’s workforce are important. Most would agree that adding productive people to the workforce is helpful and the more capable those workers are the better for them and for the country. Hence using an immigrant’s marketable skills should be an important variable in determining who immigrates and who doesn’t. But even in a mature economy there will always be jobs that do not require advanced skills.
Those capable and willing to take them should also be allowed to be part of America.
Michael A. MacDowell is President Emeritus of Misericordia University and the Managing Director of the Calvin K. Kazanjian Economics Foundation.