Monday, August 1, 2011

The Demographics of Job Creation

One of the topics that keeps popping to the surface in the swirl of discussion around the debt ceiling and the deficit is: How do we create more jobs? More specifically, the observation is routinely made that Ronald Reagan was able as President to create jobs and reduce taxes at the same time. This of course ignores the fact that taxes actually rose several times during the Reagan administration before coming down, but setting that aside, Reagan was blessed by an unusually propitious age structure. He was the beneficiary of America's age dividend. The Baby Boomers blossomed during his presidency, providing a cohort of young workers (young = cheaper than older workers in most circumstances) without a large group of older people that the government had to pay for, and without a large group of younger dependents. During his administration from 1981-1989 the percent of the US population aged 15-29 was 27--higher than at any time since the end of WWII and it has not been that high since. The population aged 20-44 was 40 percent during his presidency--higher than at any time since the end of WWII and it has not been that high since.


To give you a comparison, the peak of the age dividend for China was in the 1990s when the percent 15-29 was 30 percent and the percent 20-44 hit 43. The US did not have quite such a good dividend, but it was pretty good, nonetheless, and the US economy was strong enough to take advantage of it. 


We have a different age structure now than in the Reagan years (the percent 15-29 is down to 21 and the percent 20-44 has dropped to 34. At the same time, the baby boomers who were finding jobs back in the Reagan years are now thinking about retiring and that scares lawmakers to death (figuratively, of course, not literally). Different age structures demand different kinds of policies, so the constant reference back to the Reagan years is, unfortunately, badly misplaced.

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