Chapter 4: The Economy

Does a healthy economy require a growing population? Would slower population growth hurt business or threaten workers’ jobs? Would it help? How would the average person fare in economic terms if the rate of population growth approached zero?*

Separate statements by Commissioners Otis Dudley Duncan, with Paul B. Cornely, M.D. concurring (p. 153), John R. Meyer (p. 159) and James S. Rummonds (p. 167) appear on the indicated pages.

We have conducted research to determine what effects different rates of population growth are likely to have on the economic well-being of the nation. We compared the effects of the 2-child population projection with the effects of the 3-child projection. Our overall conclusions from this research are:

1. Major economic changes are on the horizon regardless of future changes in population growth rates.

2. The nation has nothing ‘to fear from a gradual approach to population stabilization.

3. From an economic point of view, a reduction in the rate of population growth would bring important benefits, especially if the United States develops policies to take advantage of the opportunities for social and economic improvement that slower population growth would provide.

Income

Between now and the year 2000, increases in the productivity of workers are likely to result in such a large rise in average income that styles of life in the year 2000 will be qualitatively different from what they are today. It is expected that by the year 2000 average family income, now about $12,000, will exceed S21,000, in terms of today’s dollars.¹ This is the projection, even if the work week were reduced to 30 hours, and even if the population grew at the 3-child rate.

The average individual’s consumption is expected to be more than twice what it is today, whether the population grows at the 2-child or the 3-child rate. As income increases, people show an increased preference for services, such as education and health services, as compared with manufactured goods. So, the population of the year 2000 will boost its consumption of services faster than its consumption of manufactured goods.

The rate of population growth will have a significant effect on per capita income. Our research indicates that in the year 2000, per capita income may be as much as 15 percent higher under the 2-child than under the 3-child population growth rate. The main reason for the higher per capita income under the 2-child projection is the shift in the age composition resulting from slower population growth; as we saw earlier, people of working age will constitute a larger fraction of the total population under conditions of slower population growth. A secondary reason is that with lower birthrates the percentage of women in the labor force is expected to rise somewhat faster than it would otherwise. Taken together, these trends mean relatively more workers and earners, and relatively fewer mouths to feed.

The age effect arises from the fact that population replaces itself from the bottom up; and, if it is growing, it is adding more and more at the base of the age pyramid. However, growth in the population of working age is drawn from the smaller numbers of births that occurred 15 to 20 years earlier. When growth slows, it slows first at the base, and before long we see a narrowing of the difference between the number of births and the numbers annually entering the working ages. The ratio of workers to youthful dependents rises, the income they produce is spread among fewer people, and the average income available per person in the population consequently increases.

Of course, the same process eventually causes a rise in the percentage of old people in the population—those who have passed working age. But because of higher death rates at these ages, the increase in aged dependency offsets only part of the decline in youth dependency, and the overall result is still a major drop in total dependency and an increase in income available per person in the population.

Economic Growth and the Quality of Life

The use of income or output per capita as an indicator of the quality of life has been criticized on a number of grounds. One such criticism is made by people who are concerned about environmental deterioration. They maintain that higher output levels for the economy as a whole will cause a greater drain on natural resources and more pollution.

Accordingly, we examined the effects that the 2-and 3-child growth rates would have on GNP—the gross national product—which measures the total volume of goods and services produced. GNP is expected to more than double by the year 2000, whether the population grows rapidly or slowly.² This is the prospect implied by the projected increases in per capita income and the further growth of population resulting from the baby boom.

However, if families average three children in the future, GNP will grow far more than if they average two children. In the year 2000, the difference in GNP resulting from different population assumptions amounts to as much as one-fourth of the total GNP today. Rapid population growth will cause more rapid growth in the size of the economy, and correspondingly greater demands on resources and the environment. People will not be better off economically with more rapid population growth—we have already seen that income per person is higher under the slower population growth assumption. Rather, increases in the number of people simply multiply the volume of goods and services produced and consumed. In the next chapter, we examine the meaning of these trends for resource consumption and deterioration of the environment.

Poverty

Income or output per capita is an average, and it conceals some gross disparities. We need to be concerned with these, especially at the lower end of the income scale—the people in poverty.

We have estimated the effects that slower population growth would have on poverty in the United States in the year 2000. We have found that the general improvement in average income associated with slower population growth would assist in reducing poverty, but would not eliminate it. This is not good enough.

There are today, by official estimate, 26 million Americans living in poverty conditions.³ This is 13 percent of our population. Improvements in the average income of the population do something for these groups, but not enough. Their problem is that too many of them are not part of the system that generates and distributes income.

Over six million poor people are working adults  who simply do not make enough money to meet even the minimal official income standard. Over three million of the poor are persons aged 14 to 64 who are sick or disabled, in school, or unable to find work. Nearly five million are over age 65, and over eight million are children. Finally, more than two million are female heads of family whose responsibilities at home keep them from taking jobs.

What this adds up to is that more than nine out of 10 poor people are excluded—because of age, incapacity, poor training, family responsibilities, fiscal disincentives, or discrimination in the labor market—from the system that produces and distributes income and the things income buys. Real improvements in their lot will be reflected in a changing distribution of income. But, while average income has risen dramatically and the number of poor has declined as a result, the relative distribution of income has changed little in the 25 years the Census Bureau has been measuring it.

In a country as wealthy and resourceful as ours, there is no excuse for permitting deprivation. For the working poor and those who cannot find work, the solution is to eliminate racial and sex discrimination in employment, and to improve education and training. Beyond this, we need a serious reexamination of the status of the aged. Old people are healthier and better educated than ever before. They are often forced to stop working far before the end of their productive lives, because of outright discrimination and outdated restrictions against older workers, and because of fiscal disincentives against work built into our social security laws and other pension arrangements.

Nevertheless, the country still has a number of people who cannot be helped by better access to the labor market. For these, the answer should be an increased public responsibility for maintaining a decent standard of living.

Measures to achieve an improved distribution of income should be beneficial demographically as well as socially. Evidence indicates that levels of childbearing— both wanted and unwanted—decline as income rises.

Labor Force Growth

Thirty-five million new workers will be seeking their first job in the decade of the 1970’s.4 That is seven million more than in the 1960’s. This is one of the legacies of the baby boom. As that generation comes of age, swelling numbers of job applicants put an extra burden on full employment policy.

The pressure should be off in the 1980’s. The number of new entrants to the labor force will probably be close to the figure for the 1970’s, due to declining birthrates in the past decade. Once all the new entrants and women resuming work after their children are grown are balanced out against withdrawals through retirement and death, the labor force in 1990 should number some 114 million, or 28 million more than the 1970 figure.

What happens thereafter depends mainly on the number of births in the 1970’s. If fertility should follow the 2-child projection, the number of people looking for their first job in the 1990’s should be about the same as in the 1980’s. However, if fertility follows the 3-child projection, the number of job seekers in the 1990’s will jump 10 million, to a total of around 44 million; and by the year 2000, the total labor force will number some 136 million. Beyond 2000, the difference in labor force growth between the two projections becomes immense.

It seems clear that labor-force trends under the 3-child projection can be expected to generate greater pressure for increased production, employment, and consumption, and correspondingly greater problems associated with the social and environmental consequences of such increases. The 2-child projection does not imply that these problems can be avoided, only that they will be less pressing. It implies not only smaller numbers to be accommodated, but also a context in which the urgency of competing priorities will be muted.

We have seen that slower population growth causes a gradual increase in the percentage of old people and a decline in the percentage of youth—hence, a rising average age of the population. The same process also causes the labor force to age.

Concerns have been expressed that an older labor force will lack the energy, flexibility, and imagination of a younger one. Despite the absence of evidence for these concerns, their existence is further reason to support programs desirable on other grounds, such as the provision of continuing education to our labor force. Indeed, in light of the rapid changes occurring in all aspects of life, the idea that education should be completed by the age of 18, 22, or even 30, is clearly out of date.

Business

Will a slower rate of population growth hurt specific industries, particularly those which cater to young people? Does it threaten jobs?

While it is certainly true that there would be a faster increase in the sales of certain products, for example baby foods and milk, under conditions of higher population growth, it is also true that other products and services, for example convenience foods and airline travel, would be relatively favored by the faster rise in per capita income associated with slower population growth rates. More important, it does not appear, for several reasons, that a lower population growth rate will cause serious problems for any industry or its employees.⁵

First, regardless of the rate of population growth, total income, and hence demand, will rise.

Second, slower population growth will actually cause total as well as per capita income to be higher over the next 10 to 15 years than would a more rapid population growth rate. In other words, during the next 10 to 15 years total GNP in the 2-child projection would probably be slightly larger than in the 3-child case.

Third, it is important to note that under the 2-child family projection, there is no year in which there would be fewer births than there were in 1971. In other words, a gradual approach to population stabilization would not reduce demand from current levels for any industry we studied. (We studied the effect of the 2-child and 3-child population projections on demand for housing starts, mobile homes, domestic cars, imported cars, men’s suits, frozen foods, power boats, credit, furniture and household equipment, food and beverages, beer, clothing and shoes, steel, dishwashers, railroad travel, and airline travel.)

Beyond the next 10 to 15 years, the adjustments businesses must make to changes in consumer tastes and technological developments should far exceed the problems of adjusting to a lower population growth rate. The loom tender in the diaper factory is hurt more by the competition from synthetic disposables than by the recent decline in births. Large fluctuations in birthrates will require larger adjustments by business than will small ones; still, we can have fluctuations around a 3-child as well as a 2-child growth rate. In declining communities, small businesses will not do as well economically as they would if there were more people around—some adjustments will be required. But other changes that are unpredictable today will require far more important adjustments by individuals, as well as by entire industries.

Past experience should lead to confidence that such adjustments can be made. Here is the Board Chairman of Atlantic-Richfield, testifying at our public hearing in New York:

There is a habit of thinking in some segments of the business community, of course, that population increase is somehow essential to the maintenance of vigorous demand and economic growth, just as there is an instinctive reaction against any important new cost factors being added to the processes of production and distribution. But our economy has already, and in many ways, shown its tremendous adaptability to new social demands and necessities. I have not the slightest doubt that it can meet this new challenge.⁶

The Growth Mystique

In short, we find no convincing economic argument for continued national population growth. On the contrary, most of the plusses are on the side of slower growth. This finding is at variance with much opinion, especially in the business community and among many civic leaders. We have sought to find the reason for this seeming contradiction.

Periods of rapid population growth in this country have generally been periods of rapid economic expansion as well. It is not surprising, therefore, that we associate population growth with economic progress. However, the historical association of population growth with economic expansion would be an erroneous guide to the formulation of population policy for the future.

This connection reflects in large part the fact that periods of rapid economic expansion attracted immigrants to our shores and thus quickened population growth as a result. Additions to population through immigration are far more stimulating to economic  growth than are additions by natural increase. This is because, while babies remain dependent for many years before beginning to contribute to output, many immigrants are of working age and thus become immediately productive. Immigration made a major contribution to  rapid population growth up to World War I, but its effect since then has been much diminished. In the years 1861 to 1910, the average annual immigration rate per 1,000 Americans was 7.5; the rate for the period 1911 to 1970 dropped to 1.8. The rate for the recent period reflects a rise from the 1930’s, when there was a net outflow of migrants, to the 1960’s when the rate was 2.2.⁷    

This answer may not satisfy the gas station owner, ‘local food retailer, or banker, to whom it seems obvious that “more people” means more customers or more savings accounts. Once again, however, we need to examine the kind of growth that means more business, and its relationship to local economic expansion. The rapid local population growth that means more business results chiefly from more people moving in, not more people being born and raised. Adults moving in make ready customers and ready employees. They have grown up elsewhere, their education has been paid for elsewhere, and being young, they impose few of the ands of the dependent aged. Since mobile people are, on the average, better qualified than those who do  move, it is no surprise that they provide an extra boost to local establishments.

We have studied the effects of lower national population growth rates on the economic well-being of urban and rural areas within the nation. Is there reason to fear that the ills typical of areas of population decline today would become more serious or widespread if national population growth rates declined? We conclude that there is not; such fears are based on a mistaken belief that population decline causes economic decline. In reality, the chain of causation in distressed areas runs from (1) the decline of regional competitive capability to (2) unemployment to (3) net outmigration to (4) population loss.⁸ Accordingly, there is little reason to suppose that local problems of unemployment or obsolescence of physical facilities would be more serious in a situation of zero or negative national population growth than they would be at any positive level of national population growth. In the future, as in the past, areas of relatively high unemployment will tend to be areas of relative population loss; but the relative population loss will be the consequence and not the cause of local unemployment.

The diminished burden of providing for dependents, and for the multiplication of facilities to keep up with expanding population, should make more of our national output available for many desirable purposes: new kinds of capital formation, including human resources investment; public expenditure involving qualitative improvement and modernization; and greater attention to environmental and amenity objectives. Thus, whatever the future problems of urban areas and regions may be, we should have more ample per capita resources to attack them in a situation with a lower rate of population growth than we would have with a higher rate.

Summary

We have looked for, and have not found, any convincing economic argument for continued national population growth. The health of our economy does not depend on it. The vitality of business does not depend on it. The welfare of the average person certainly does not depend on it.

In fact, the average person will be markedly better off in terms of traditional economic values if population growth follows the 2-child projection rather than the 3-child one. Slower growth will give us an older population, and this trend will require adjustments well within the ability of the nation to provide. Beyond this. however, we point out that the fruits of slower population growth will be denied to those most in need of them unless deliberate changes are made in distribution of income to those who lack it by reason of discrimination, incapacity, or age.