In 2011, during the dismal depths of the recession, I had written a column for the then-St. Petersburg Times stating that the unemployment rate would decline faster than forecast once the huge wave of seniors would begin to retire. At the time, the economic outlook was dismal. Growth was decelerating, and many were predicting a lengthy recession. Feeding the economic forecasting frenzy was the fact that the unemployment rate was at 9 percent. Nearly one in every 10 Americans was out of work.
But others saw a different scenario, one that seems to have come to fruition. No one can take credit for this rosy economy we are experiencing now, as some are prone to do, and no one can level blame for whatever turns it takes. It’s just a matter of cold, hard demographics.
The baby boomers, at the center of so many other trends — good and bad — throughout their lives, are, once again, the reason. They may be the cause of a job boom simply by retiring, aging and requiring care and maintenance and here’s why: the “dependency ratio.”
That ratio — a measure of the number of dependents each worker must support — had been declining for more than a decade. But it started to rise around 2012 as a huge wave of baby boomers began to retire. Furthermore, the dependency of each retiree (over 65) is three times that of a child (under 20) because seniors consume three times more in goods and services than children. So, even though Americans are having fewer children, more resources will be required to support the growing population of retirees.
About 10,000 boomers are turning 65 every day. As they retire and age, they will create far more job openings than just the ones they leave. They may require financial counselors or health care professionals — even people to mow their lawns and paint their houses. They may want to pay for someone to drive them around and shop for them.
The number of retirees per worker will increase from 25 per 100 workers currently to 31 per 100 workers by 2025, and to 35 per 100 by 2030. These increases are huge, and the adjusted dependency ratio will be off the charts relative to the 1980s and 1990s because, remember, retirees consume three times as much as a child in goods and services.
So, what does all this portend for the future? The economy will continue to be strong, thanks more to the baby boomers aging than the implementation of any economic policies, tax plans or tariffs. An aging populace simply requires more assistance in their lives, creating more jobs that range from low-wage earners, mostly, to high-end professionals, occasionally.
Expect that the sharp increase in the dependency ratio will persist until 2030 and will continue to rise subsequently, but at a slower rate. Analysts estimate that an additional 4 million workers will be needed each year by 2030 if the dependency ratios of 2030 to 2050 are to match the dependency ratios of 1980 to 2000. And this number is well over and above the estimated number of young Americans and immigrants entering our labor force. Translation: more jobs than workers.
Furthermore, the “consumption basket” of retirees, which consists of medical services, leisure activities and housing, cannot be imported. More American workers will have to be employed if retirees are to expect the same level of care and services as previous generations of senior citizens. Unfortunately, many of the jobs that are being created are lower-paying jobs in the health care and services industries.
The outlook is not all optimistic, however. For example, one reason for the strong employment numbers we now enjoy is the stimulus provided by the recent tax cuts and spending increases. The downside of the stimulus is that it will drastically increase the deficit from $585 billion in 2016 to over a trillion dollars per year by next year.
A booming economy really lies in well-paying jobs in the manufacturing sector and, though there has been some job creation in that sector, we have yet to see the millions of high-paying manufacturing jobs that were projected to return to the United States after the tariffs were imposed on other countries.
The rationale behind introducing the tariffs was to reduce the trade deficit with other countries, but that has not been the case. Data shows the deficit is increasing and with no immediate end in sight. Also, the tariffs have the same effect of a tax increase, which is slowing economic growth.
Finally, the removal of some regulations in the energy sector and the environment is especially worrisome because, according to the scientific community, climate change presents a clear and present danger to the United States and the world. Easing regulations may have boosted short-term economic growth and employment, but the boost may be short-lived, as the price we and future generations will have to pay will be very costly.
Murad Antia is a professor in the Muma College of Business at the University of South Florida.