Population Trends

Brink Lindsey:

Consider this puzzle. Compare economic performance in two periods: 1973-1990 versus 1990-2007. Both periods are 17 years in length; both begin and end with the last year of an economic expansion. In the earlier period, the U.S. economy weathered oil shocks, stagflation, and a punishing recession in the early ’80s, and growth in labor productivity in the nonfarm business sector limped along at a dismal 1.33 percent a year. In the latter period, prosperity was interrupted only by a pair of brief, mild recessions, and the IT revolution led a dazzling rebound in productivity growth up to 2.33 percent a year. Yet in 1973-1990, real gross domestic product per capita rose at an average annual rate of 1.93 percent – better than the 1.85 percent average annual growth rate during 1990-2007. How could that have happened?

The answer to the mystery lies in the gradual, ongoing slowdown in employment growth. Between 1973 and 1990, total civilian employment rose 39.6 percent, as compared to only 22.9 percent between 1990 and 2007. After decades of steady increases, female participation in the labor force plateaued during the 1990s; meanwhile, the aging of the population has been slowing down the growth of the overall labor force. Think of per-capita GDP growth as a function of two variables: output per worker-hour (labor productivity) and the total number of worker hours. As it happened, the big productivity surge that started in the mid-1990s wasn’t enough to offset the big drop-off in employment growth.

“We should let more people, especially people with skills, immigrate to America and work for a living” isn’t a very profound answer to the mysteries of economic growth, but it sure would do a lot of good.