Baby Boomer Demographics & Immigration

The aging of the baby boomer generation will slow labor force growth, increase the burden of older, retired persons on younger workers, and create a potential drag on productivity growth. Between 2002 and 2012, persons aged 55 and older are estimated to grow an average of 4.9% per year, or nearly quadruble the growth rate of the overall labor force. The number of workers aged 25-54, in contrast, will grow by only 5.1 million workers, or at a rate of 0.5% per year. These demographic trends slow the rate of growth of the total prime-age labor force.

The aging of the population will change the dependency ratio–the number of non-working dependents compared to economically active workers. That ratio is expected to rise as the baby boomer generation enters retirement and as U.S. fertility rates remain low, leaving a greater number of elderly to be supported by each worker. The decreasing number of taxpaying workers supporting each retiree will strain public assistance programs for the elderly including Social Security and Medicare. An infusion of young taxpaying immigrants can help address future shortfalls in these programs.

While the evidence suggests that greater immigration could aid elderly assistance programs, it should not be expected to solve the problem. Increased immigation can temporarily lessen the Social Security and Medicare burden on native workers, but in the longer-run, permanent immigrants will also age into retirement. Further, immigrants are only 12% of the U.S. population and current rates of immigration add about 1 million immigrants yearly toan existing base of about 34 million.

Immigration also may boost productivity, because immigrant workers tend to be younger and therefore generally more productive than older workers, but it is unclear how greatly immigration would need to be expanded to significantly enhance productivity. A National Academy of Sciences report in 1997 concluded that immigrants generate a small but positive boost to the gross national product by generating increased returns to capital that are greater than their adverse wage impacts. Some evidence suggests that innovation thrives when human capital is agglomerated in areas with many specialists and skilled migrants. The booming economy of the late 1990s was fueled by historic productivity gains, one-third of which came from information technology (IT), and forieng workers fueled one-quarter of the IT labor force growth. Also, immigrants started about one-third of Silicon Valley’s high-tech start ups.

Potential problems created by the aging of the U.S. labor force cannot simply and entirely be solved by more immigration, but budget and productivity shortfalls at least will generate demand for generous numbers of skilled immigrant workers.

Some might argue that strategies other than immigration could be used to meet the country’s coming economic needs. For example, the need for high-skilled labor could be met in ways other than increasing the numbers of high-skilled immigrants allowed into the country. High technology jobs could be outsourced to rising centers of technological expertise such as Bangalore or other growing hot spots around the world. Or the United States could devote greater resources to raising the skill level of residents, retraining workers from sunset industries and improving the teaching of skills most relevant to the future economy of the country’s youth.

Given the dynamic nature of the economy, the uncertainty of any attempts to predict the needs of tomorrow’s economy, and the limited control any government can exert over demographic changes, it is difficult to say with any certainty how immigration can or should be used to meet the needs of the country’s coming labor markets. However, it is quite clear that immigration has been an important source of labor force growth in the past, and that the skills required of the occupations important to the future, in both technology and healthcare industries, will likely match reasonably well with the skill profiles of immigrants today and the projected skill profiles of future immigrants. Immigrants currently play a large role in several of the occupations expected to have most growth both in terms of the rate of growth or growth in numbers of workers, and can therefore be expected to contribute to meeting the future demand of these industries. Immigration is not the only answer to the country’s future economic needs, but it could, and likely will, play an important part in a more comprehensive solution.

source: Migration Policy Institute
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