If you think the shock waves of the 2008-09 global downturn are finally coming to an end, think again. The aftermath of that downturn is apparently brutal enough that it is making some millennials wary about having children, or at least having them later than would have been the case otherwise. That is not just a decision that affects them, it is a decision that could have wide-ranging labour-market and public-policy implications a decade or so down the line.
The alarm bells on all this are sounding in the United States, where it is now clear that any postrecession baby boom is simply not going to happen. That U.S. births slumped during the recession and its aftermath was no big surprise. Whether we are talking about the Depression of the 1930s or the recession of the 1980s, people put off having children when times are tough and the number of births starts to fall. Then, when things get better, births start to rise again. That’s what is missing this time around. At 3.79 million, the number of babies born in the United States in 2018 was the lowest since the 1980s and well below the 4.32 million seen in 2007, before the downturn. Although a small part of the difference may be due to the aging of millennial women as a group, demographics do not fully explain the trend.
One explanation for the U.S. situation is that the country is simply catching up to Canada and other parts of the industrialized world where birth and fertility rates (the number of children that a woman has over her lifetime) have been slumping for years. In fact, Canada’s fertility rate has been below the “replacement rate” of 2.1 since the 1970s, and as of 2017 was around 1.5, well below the 1.7 that is getting people so worried in the United States. The question really might be why the United States was an outlier among other countries for so long.
For both Canada and the United States, however, economics is clearly shaping some of what we are seeing in terms of births. In the aftermath of the global downturn, companies and governments have made adjustments that have not favoured the fortunes of those in their 20s and 30s. Student-loan burdens are heavy, wage growth is slow and the jobs that millennials get are increasingly likely to be contract ones. Interest rates are low, which has boosted home prices, and lending standards are strict. All these things together may not mean people put off having children forever, but they are likely to mean they have them later and, consequently, have fewer. Indeed, the U.S. data show that in 2018 birth rates fell for women in all age groups with the exception of those between the ages of 35 and 44.
So, let’s flash-forward 20 years or so and look at what this will mean for the economy. In Canada at least, low birth rates are more or less baked into our projections, and increasingly they will be in the United States as well. What is ahead, is very low labour-force growth, perhaps at a pace about half as quick as was the norm a couple of decades ago. All things being equal, that means lower economic growth and perhaps labour shortages ahead. Or perhaps not. Given that one of the big worries these days is that automation will slow labour demand, slow labour-market growth could end up giving Generation Z job entrants a small advantage in that they have fewer people to compete with for work.
But if there is an advantage to Generation Z from low birth rates, it is one that will not be echoed for baby boomers, Gen Xers or millennials looking for someone to support their pensions and government benefits. All things being equal, that will mean an unappetizing array of choices for governments, ranging from higher taxes on businesses and individuals to program cuts to ever-higher deficits, with all that goes with them.
To avoid the economic costs of having too few future taxpayers, there are two main paths, both of which should ideally be pursued. One is to encourage women to have children, whether that means providing better parental leaves, more in the way of daycare subsidies or progressive workplace policies. Those things are all important and can all help boost births, but we should remember that Canada has consistently had a lower fertility rate than the United States, despite the fact that we already score a lot better on those measures.
The other way around a radical rethink of social programs in the future is to accept that taxpayer growth is not going to be strong enough to keep things as they are, so perhaps we need to look at ways to boost economic growth and revenue growth over the long term. That may mean encouraging innovation and investment in new technologies and really doing everything possible to make sure that the work done by our future labour force is as productive as it possibly can be. If we get that right, low births and high automation could end up actually complementing each other quite well.