Since the invention of birth control and antibiotics, country after country has gone through a fairly standard shift. First, the mortality rate drops, especially among the young and the aging, and that quickly translates into a bigger workforce. Then, birthrates drop, as families realize that they no longer need to birth a basketball team to ensure that a couple members will survive to adulthood. A falling birthrate means that parents can invest more in each child; with fewer mouths to feed, more and better food can nourish each of them, and children can spend more years in school, causing worker productivity to rise from one generation to the next. As the burden of bearing and rearing children lightens, mothers can do more work outside the home, boosting both household resources and the national economy.
In 1984, when Ronald Reagan spoke of “morning in America,” he was at least demographically accurate. The youngest members of America’s vast Baby Boom were in college; the oldest were on the brink of their peak earning power. America was about to reap what the economists David Bloom and David Canning have dubbed the “demographic dividend” of rising labor supply and productivity. Bloom and Canning’s analysis of East Asia and Ireland attributes a substantial fraction of the recent economic booms in those places to this dividend.
But the dividend does not last forever. Eventually, the baby bulge reaches retirement age, the labor force stops growing, and older workers start spending their savings, depleting the nation’s supply of capital. The virtuous cycle turns vicious. This is what is happening right now in much of southern Europe.
Is strong growth still possible once the demographic dividend has been paid out? Of course it is, at least in theory. Even if the workforce isn’t expanding, strong-enough gains in worker productivity can substantially lift the economy. Longer hours and longer careers can theoretically have the same effect. But it is far from clear that in practice, these solutions will work, given the advanced age of Europe’s workers.
To see why, picture two neighboring towns, sharing all the same infrastructure and economic opportunities, with one key difference: their median age. In the first town, which I’ll call Morningburg, the average resident is 28. In the second, which I’ll call Twilight City, the average householder is 58.
Research indicates that even with all the same resources at their disposal, these two places look very different, and not just because one’s grocery store does a booming business in diapers while the other’s has a whole aisle devoted to Centrum Silver.
In Morningburg, young workers are rapid, plastic learners, eager to try out new ways of doing things. Since they’re still hoping to make a name for themselves and maybe get rich, they take a lot of risks. They push their managers to expand into new markets, propose iffy but innovative product lines, maybe start their own firm if the boss won’t let them advance fast enough. For the right opportunity, they’ll put in 18-hour days for a year or more.