Thursday, January 10, 2013

Demography as Destiny ... The Lessons of California's Aging and Declining Population May Be Coming to a State Near You

We're getting older as a nation. And we're having fewer children and welcoming fewer newly arriving immigrants as well.

But is that a bad thing? Well, yes. It's a bad thing since the younger members of the work force heavily support the entitlements received by the older retirees through their taxes paid on earnings. The government takes from the workers and gives part of what it takes to the non-workers.

Those current payroll, income and other work related taxes are what are used to pay for things like Social Security, Medicare, public education and other social services. It's a generational issue.

Less coming in means less going out, whether the less relates to numbers of people working or taxes paid by those workers, to put it bluntly. And more going out of the work force means less money will be available to support those not working, including retirees.

The situation in California has a great deal to teach us about the importance of understanding changing demographics and its impact on an aging population. The effects of demography are not a matter of choice or ideology. Demography is just a description of the way things are with respect to the effects of changes in populations on a society.

So let's focus briefly on California and what it has to teach us about demography's effects.

Californians are getting older and fewer. That presents a uniquely difficult problem for future generations --- how to pay for all the promises the current generation has made to itself.

In simple terms, if three people now work to support old age retirement benefits to the elderly and only two people do so in the future, the burden of the two future workers will be so high that they may not be able or willing to make the promised payments in full.

And if the future educational level and economic circumstances for that future generation are indeed more difficult than historically has been the case, that adds greatly to their dilemma. And if fewer immigrants appear and fewer births occur, then something dramatic will have to change.

That's exactly what is happening today in California and many of the heavily populated Midwest and  Northeast states as well.

Throw in a sloppy economy and a public sector union dominated work force, and the demographic dilemma will quickly become a crisis. Paying the unfunded pensions for public sector workers in Illinois comes quickly to mind.

A California Drought: Not Enough Children has the details:

"Declining migration and falling birthrates have led to a drop in the number of children in California just as baby boomers reach retirement, creating an economic and demographic challenge for the nation's most populous state.

"After decades of burgeoning population and economic growth…the state now faces a very different prospect," said a report released Tuesday by the University of Southern California and the Lucile Packard Foundation. The report, "California's Diminishing Resource: Children," analyzed data from the 2010 census and the American Community Survey to conclude that the trend marks a "historic transition" for the state.
In 1970, six years after the end of the baby boom, children made up more than one-third of California's population. By 2030, they will account for just one-fifth, according to projections by lead author Dowell Myers, a USC demographer. "We have a massive replacement problem statewide," Mr. Myers said in an interview.

California's demographic shift mirrors that of many Northeast and Midwest states, including New York, Massachusetts, Illinois and Michigan, where the percentage of children fell even more sharply from 2000 to 2010. But unlike those states, California has always relied on migrants from other states and abroad to fuel its economy, and the change represents a new reality for the Golden State.

Ever since the Gold Rush, the majority of Californians has been born elsewhere. That pattern began to change in the 1990s, when migrants were attracted by the lower cost of living and rapid growth in other Western and Southern states. Then, the housing bust and 2008 financial crisis hit California harder than most states. By 2010, more than half of all adults 25 to 34 years old were born in California.

At the same time, the state's birthrate fell to 1.94 children per woman in 2010, below the replacement level of 2.1 children, according to the study. California's rate is lower than the overall U.S. rate of 2.06 children in 2012, according to the Central Intelligence Agency.

The shrinking pool of youngsters coincides with a bulging population of older people. Nationally, "we are approaching a period of very large retirement, something like two million people a year for the next 20 years," said Stephen Levy, director of the Center for Continuing Study of the California Economy, an independent research group.

In 1970, California averaged 21 seniors for every 100 working-age adults. By 2030, that ratio is expected to rise to 36 seniors per 100 working-age adults, according to the report. That retirement wave will place "massive pressure on institutions and programs for an aging population," the report said.

Today's children will be the workers who pay for those programs and who take jobs vacated by boomers in the state's high-technology hub in Silicon Valley, its entertainment industry in Los Angeles and its farm belt in the Central Valley.

"Unless the birthrate picks up, we are going to need more immigrants. If neither happens, we are going to have less growth," said Mr. Levy. The report wasn't optimistic, saying that "with migration greatly reduced…outsiders are much less likely to come to the rescue."

Investments in the state's education system will be vital to meet labor-force needs and prevent the economy from contracting, said Mr. Levy. With less migration to the state, the skills and human capital necessary to keep California's economy afloat will need to be homegrown, both Mr. Levy and Mr. Myers said.

With more than 90% of the state's children under age 10 born in the state, "the majority of the next generation of workers will have been shaped by California's health and education systems," Mr. Myers said. "It's essential that we nurture our human capital."

Many of those future workers, however, will have grown up in poverty. More than 20% of children in California now live below the federal poverty level.

The report found that the birthrate had tumbled for every population group. In 2010, it was below replacement level for whites, Asians and African-Americans.

The birthrate for Hispanics, who account for 51% of children under 18 in the state, was slightly above replacement level. But Hispanic birthrates are seeing the steepest drop of any group and are expected to fall to the replacement level in 2020, the report said."

Summing Up

What's happening in California isn't pretty to see, but it is necessary that we look at it clearly.

In other words, albeit not a happy thing to contemplate, California's aging related issues are very real. And throughout America we need to heed their lessons to be learned.

Tomorrow is never today 24 hours later, and nowhere is that more true than in California. Things change. Change is.

As a nation we're getting older, retiring earlier, educating our children more poorly, fighting more immigration, breaking up more families, and relying on bigger and bigger government to take care of our financial needs.

By so doing, we're also robbing the opportunities that would otherwise be available to future generations simply in order to pay for the wants and needs of the current generation of older folks and soon-to-be older folks as well. That's selfish of us.

And it's also unsustainable. So now that we're appropriately forewarned, will that mean we're forearmed? And will we take the necessary actions to live up to our reponsibilities as a society of equals?

Or will we just sit still and let things get worse and worse for those who are destined to follow us?

Here's what I say. Rather than "save the middle class" by perpetuating generational redistribution schemes which take from the young and give to the old, why don't we just work hard to make the right decisions to "save" the future opportunities for our kids and grandkids?

Just like our parents and grandparents did for us. The choice is ours.

Thanks. Bob.

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