Demographics is not Destiny

Repeat after me Demographics is not destiny. Demographics is not destiny. Demographics is not destiny. Okay, now you may skeptically read the new study from five Federal Reserve economists, entitled

Repeat after me

Demographics is not destiny.
Demographics is not destiny.
Demographics is not destiny.

Okay, now you may skeptically read the new study from five Federal Reserve economists, entitled "The Recent Decline in Labor Force Participation and its Implications for Potential Labor Supply." The study argues that the workforce is going to grow more slowly than people expect, because of the aging of the population, and concludes:

Absent a pickup in the underlying pace of productivity growth, such a slowing in labor input would, in turn, reduce the sustainable rate of economic growth relative to the robust pace experienced over the past decade or so.

Doesn't anyone ever read history here? It's always tempting for economists to make forecasts based on demographic arguments--after all, predicting the age structure of the workforce ten years from now is pretty straightforward.

But the track record of demographic-based forecasts is absolutely horrible. See, for example, my piece "Productivity Trumps Demographics". And notice that the authors of the new study leave themselves an out at the end:

the rising participation rates of the elderly—another group for which the recent performance of the model has been problematic—would seem to be a particularly important wild card in the years ahead. This age group is large and growing, and a further uptrend in these rates could contribute significantly to movements in the aggregate participation rate in the future. Moreover, longevity and health are particularly difficult variables to forecast, and coupled with the likely shortfall in the labor supply of younger workers, positive innovations in those determinants of participation could be especially potent.

Oh, I see. If health and longevity improves, and employers become more willing to hire older workers...then "never mind."

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