Millennials aren’t having as many children as previous generations, which could end up holding back economic growth for more than a decade.
That may not deter some childless millennials, who use money that would have been spent on childcare to splurge on lavish vacations, flashy boats and other luxuries popular among DINKs. couples who live on a double income, without children.
But that kind of spending won’t be enough to offset the long-term impact of population decline on the economy, especially as the U.S. birth rate has collapsed over the past half-century, they said. economists told Business Insider.
In 2022, there were only 11.1 births per 1,000 people, according to the Centers for Disease Control and Prevention. This represents a 53% drop from what was recorded in 1960, when there were 23.7 births per 1,000 inhabitants.
The baby shortage is particularly acute since the pandemic, according to James Pomeroy, global economist at HSBC. The national birth rate is now falling about 2% each year, he estimated – and it has not recovered in 2023, as experts had initially predicted.
This puts the United States at risk of experiencing “extremely low” population levels in the long term, much like countries like China, where population decline is so severe that the government is doling out money to convince people to people to have more children.
“What you’re talking about is birth rates dropping to very, very low levels, which over time has huge impacts on the economy,” Pomeroy said. “And then, by 2030, we are talking about a birth rate very different from that of the hypotheses formulated at the start of the decade.”
The impact of millennials having fewer children will likely be worse than that of aging baby boomers — and the most dire consequences could come in 10 to 15 years, Pomeroy estimated. He cited the example of Japan, which in the 1990s had a birth rate similar to that of the United States today. Its economy experienced the “worst period” of growth about a decade later, when its workforce shrank and the country recorded several years of negative GDP growth.
The declining U.S. birth rate could lower GDP by 1 to 2 percentage points each year, according to Todd Buchholz, a former White House economist. Over several decades, that is the equivalent of reducing the U.S. growth rate by a third, he estimated, or wiping out estimated productivity gains from artificial intelligence. In a worst-case scenario, GDP growth could fall by 3 to 4 percentage points, Pomeroy warned.
Fewer Americans being born means fewer workers in the economy.
“It’s harder to find someone to cut your hair, work your nails, set up the X-ray machines at the hospital,” he said. “Simply decreasing the number of people…becomes a problem.”
Declining fertility rates also mean it will be harder to afford the bulk of Social Security benefits, particularly as baby boomers age and retire. Baby boomers are estimated to exert a “peak burden” on the U.S. economy in 2029, when all baby boomers will be 65 or older.
“We’re going to have a lot of trouble… figuring out how to pay for pensions. The pensions promised to the elderly – Medicare and Social Security – are going to end up in huge deficits,” Buchholz added.
If the birth rate doesn’t rise soon, he estimates there will eventually be two full-time workers for every retiree, compared to about 20 workers per retiree in the 1930s.
“It’s just not sustainable,” he said.
Downward spiral
It’s hard to convince people to have children.
Once the birth rate begins to decline in an advanced economy, it typically continues to decline, Pomeroy and Buchholz note. This has been the case for China and Russia, two countries that have faced low birth rates for decades and are now hampered by demographic problems.
Government policies that support those who have children could be one way to increase the birth rate – or at least prevent it from falling further. Increasing the supply of available housing, which can drive housing costs down to exorbitant levels, will also help, Pomeroy said, although it will likely take decades to build up enough inventory to meet demand.
The most important thing to encourage people to have more children might be a cultural shift in how we talk about children, Buchholz says. He pointed to discussions among millennials about how much money one can save by not having children — about half a million dollars, according to a CNBC analysis.
In the United States, rising costs, from housing to health care to education, are weighing on younger generations’ decisions to have children. In addition, the existential uncertainties linked to situations such as the climate crisis or technological upheavals such as artificial intelligence do not make the decision easier.
“I think it’s a net negative to have fewer kids when the choice is between having one and investing in a new Sony PlayStation,” Buchholz told Business Insider. “Now it seems crude, vulgar and inhumane to admit that people do it, but people will openly say that having a child is expensive.”
Many DINK couples say they don’t regret their life choices — much to the chagrin of their detractors — but that blasé attitude might be the very problem, Buchholz speculated.
“‘At the end of my life, I was surrounded by a machine attaching me to oxygen, a nurse and a lawyer.’ It seems like a very dreary way to end life,” Buchholz said. “So I think the discourse needs to change. So it’s not about the fear of missing out on something and only being able to live once. People who have children have the feeling of living more once.”
This story was originally published in February 2024.
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