In discussions about the demographic situation around the world, people often talk about the U.S. as though it’s the “cleanest dirty shirt,” meaning that it’s not good, but compared to other places, it looks good. Europe is ageing rapidly, in part thanks to dropping fertility rates. Japan is famously old. And even China, thanks to the long-term ramifications of its one-child policy, may be the first country that “gets old before it gets rich.”
The U.S. is old and ageing, but at least we have relatively robust levels of immigration keeping us young, is how things are usually characterised.
But the situation might actually be a bit more positive than that, at least in terms of how our demographics will impact the medium term of the economy.
Earlier, we published a chart from Matt Busigin, which augurs well for the economy.
What the chart shows is that the future employment of the 25-34-year-old demographic has historically been a function of the number of 20-24-year-olds there are in the economy. This is significant because this represents a big boost in the future of people with spending power who will form households, which is all stimulative stuff.
But that’s only part of the story.
The other part of the story is that with household net worth rebounding to pre-crisis levels, a lot of folks who are 55+ are finally retiring, and that’s clearing the way for younger workers. What’s more, the rise of retirements will prompt companies to spend more on productivity-boosting capital equipment, which is a trend that’s been largely missing since the recovery.
UBS economist Drew Matus tells the demographic story in three charts:
So while it’s true that the U.S. is ageing, that’s just one side of the coin. There’s another, younger generation that’s hitting its prime age of accelerating income, and U.S. corporations will have to spend more to be more productive.
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