In its budget for 1980, the Carter administration included a brief essay on the effects that population change will have on budget priorities, and national policy choices, over the coming generation. Here are some excepts:
Demographic changes have substantial effects on the budget, some of which can be anticipated. For example, we can estimate fairly accurately the number of people reaching retirement age a few years hence. Other effects may be harder to predict, not least because demography is only one factor affecting change.
During the Depression of the 1930s relatively few children were born in the United States -- fewer than 2.5 million in most years. After World War II this country experienced a "baby boom," which peaked in 1957 when 4.3 million children were born. Now, although there are many more women of prime child-bearing age (the women born during the boom), their fertility is only half that of their mothers, and in recent years only about 3 million children have been born annually. Consequently, the baby-boom generation constitutes a huge "age lump" in our population -- a demographic tidal wave. (In 1970, half our population was age 27 or younger; assuming no further decline in fertility rates, by the year 2040 half the population will be age 46 or older.)
This tidal wave has many important consequences for American society -- and for the budget, which includes many programs that serve specific age groups....
The severity of the future social and institutional changes resulting from fluctuations in fertility depends in part on future fertility -- which is difficult to forecast. U.S. fertility rates have been declining since 1800, with the one exception of the post-World War II baby boom. Currently, the U.S. fertility rate is significantly below the "replacement rate" needed to maintain a constant population in the long run. "Zero population growth" requires that an average of about 2,100 children be born to each 1,000 women of child-bearing age.In 1976, the rate was 1,760 per 1,000 women. Recent birth rates, if continued indefinitely, would imply an eventual decline of the U.S. population by about 17 percent per generation, in the absence of net immigration. Current net immigration rates only fill half of this "birth gap"; and the gap threatens to widen.
Between 1950 and 1970 the number of elementary and high school age children (ages 5 through 17) increased 70 percent. The estimated school-age population for 1979 is almost 11 percent lower than in 1970. A further 10 percent decline could well occur over the next decade. Despite the decline in the school-age population from 1970 to 1979, federal spending for elementary and secondary education, adjusted for inflation, increased by 25 percent. This amounts to approximately a 35-percent increase in constant dollars per pupil. In the face of the decline in the school-age population, the long-run federal effort in education would appear to merit reexamination. However, the targeted approach of federal aid to education in this budget, with emphasis on those with special problems or in particular need of assistance, makes it clear that number of students is not the only relevant consideration.
Moreover, it is likely that the decline in the school-age population will be at least temporarily reversed. This is because, despite their low fertility rates, the members of the baby-boom generaration are so numerous that their children will comprise a mild demographic "echo" of the original boom. That echo will pass through the schools in the 1990s....
The labor force
The most rapid rate of growth in the labor force since World War II is occurring now, in the 1970s, as the baby boom is reaching working age.
In the last 13 years the number of new entrants to the labor force has increased steadily. The largest age group in 1978 was 21-year-olds, the size of each annual cohort behind the present-day 21-year-olds will be smaller for at least the next 20 years.
Large influxes of young (and inexperienced) new workers into the labor force may increase the unemployment rate if there are not enough new jobs in the economy that meet the aspirations of young people in search of jobs. Productivity may be lower due to the inexperience of the new workers. Thus, the entry of the baby boom into the work force may help to account for the high unemployment and low productivity growth of the past decade. Conversely, once the bulk of the baby-boom generation is employed, the average age and experience of the work force as a whole will begin to rise. This may tend to increase productivity and decrease the unemployment rate. However, nondemographic forces could offset these influences.
As labor-force growth slows in future years, and as the number of teen-agers in the labor force begins to decline, labor markets may tighten, and it is possible that labor shortages will develop. If so, the federal investment in training, employment and labor services will need to be reexamined. Possibly, there will need to be less emphasis on youth programs and public-sector jobs, and more emphasis on retraining and retention of older workers, increasing the mobility of workers and providing services (child care, transportation) to people who otherwise would have difficulty working.
The all-volunteer armed forces
The future decline in the number of new entrants to the labor force will be felt by the armed forces as well as by the civilian labor market. In 1977, males recruited into the armed forces represented approximately 20 percent of that year's cohort of 18-year-olds. Since the draft ended in 1973, the armed services have had to compete directly with civilian job opportunities for recruits. Except for the Reserves, they have been relatively successful to date. If the armed forces are to maintain their present force levels, however, then either the percentage of each year's cohort of 18-year-old males recruited will have to increase substantially over time as the potential pool shrinks, or women will have to make up a substantially higher percentage of recruits. Alternatively, retention rates will have to be increased substantially. The budget could be affected if adjustments in military pay and benefits relative to private sector compensation become necessary.
Age and crime
The national crime rate is generally affected by both the unemployment rate and the number of people in the high-crime age group. Two-thirds of arrests in 1975 were of people between the ages of 13 and 29. The absolute size of this high-crime age group will reach a peak in 1980 and then decline for the rest of the century. It is by no means clear that the nation can literally grow out of its high crime problem. Moreover, recent trends suggest leveling or declining crime rates despite demographic trends. However, demography may still be a factor in considering anti-crime programs....
Retirement and medical plans for the aged
The elderly population in the United States has grown dramatically in the past century, not only in absolute terms but as a percentage of the total population. An increasingly elderly population, rising life expectancy, the distinct trend toward declining average retirement ages, and the trend toward declining labor-force participation by older people could combine to create a retirement and medical system funding problem in the 21st century.
Total federal, state and local taxes in recent years have amounted to about 33 percent of GNP -- 11 percent for social-insurance programs, including Medicare, and 22 percent for other purposes. If requirements for other purposes remain at 22 percent of GNP and if the ratio of the average retirement benefit to the average wage were to remain at current levels, the total tax burden, 50 years hence, would have to be close to 50 percent. There are alternatives to such high future tax rates, such as lower benefits and later retirement ages. But these are not easy choices. In addition, there would be major transition problems if the terms of retirement programs are to be modified signficantly. This is because there are implicit or explicit understandings between government and private sector employers and their workers concerning their retirement benefits. Ultimately, the issue will be how much of the resources produced in 2035 by the labor force employed at that time will be transferred to the retired generation.
The trends that have been described above are likely to affect federal, state and local sectors of government differently, and will in turn affect their relationships with each other. Education is the largest single component of most state and local budgets. Retirement and disability programs are the largest component of the federal budget....
With a decreasing number of students to be educated, state and local governments might assume new responsibilities, run surpluses or cut taxes. The federal government, however, is likely to have fewer long-term options as the number of aged in our population grows. Retirement and medical benefits for the elderly are already 37 percent of the federal budget. If retirement and related benefits continue to grow faster than the economy, we must face a choice among such alternatives as reducing other federal programs in relative size, increasing the size of the federal sector, reducing retirement benefits or raising the retirement age.