How to prepare America for demographic decline

Workers monitor robotic arms at Machina Labs in Chatsworth, California on February 13, 2023. (Photo by Kyle Grillot/Bloomberg via Getty Images)

America is in the early days of a vast demographic transition. In the coming decades, the U.S. population will grow far more slowly than ever before, and it will become much older and more racially diverse. This shift will transform the country in many ways, and the United States is not prepared. 

Let’s start with the U.S. economy. It will almost surely face vast labor shortages, leading to much greater reliance on AI and robots. A shrinking population of young adults might also mean less innovation and risk taking. The United States will find itself with too many schools and colleges and too little infrastructure to support its senior citizens. Absent sweeping course corrections, demographic change will drive the national debt exponentially upward, generate higher inflation, and upend America’s geopolitical position. And it will rescramble politics, as parties struggle to adapt their messages to a very different electorate. 

Preparing for these realities will demand wrenching shifts in the country’s priorities. The United States must rethink its policies on innovation, infrastructure, health care, taxes, trade, immigration, and more. As countries around the world face similar trends, those that rechart their course the most successfully will prevail. Those that don’t – perhaps including the United States – will experience painful decline. 

A new era

Four megatrends will reshape America’s population over the next 25 years and beyond. 

First, according to projections from the U.S. census, the country’s population will grow just 6% between 2024 and 2050, from a total of about 340 million today to 360 million in 2050. It will peak in the 2070s at about 370 million and then decline for many decades thereafter. These forecasts are based on assumptions by the Census Bureau about births and immigration. Given how slowly birth-rate trends evolve, these parts of the estimates are likely to prove accurate.  

Immigration, by contrast, is determined by many factors including political decisions made by Congress, so making accurate predictions about its course is harder. The U.S. census assumes that net immigration will remain at just under a million people per year going forward – similar to the levels between 2000 and 2019, but much lower than the inflows between 2022 and 2024. But the Census Bureau also offers alternative high and low immigration scenarios, which put the 2050 population at 384 million and 345 million, respectively. 

The second megatrend facing the United States is that, following the year 2030, the population of Americans younger than 25 will start shrinking in absolute terms. This shift will be the product of a stunning collapse in U.S. birth rates since the 2000s – the most underdiscussed but momentous story of the past decade. Births began declining after the 2008 financial crisis, defied predictions by dropping further during the 2010s, and plunged again sharply after 2020. Last year, the U.S. birth rate was 1.62 children per woman over a lifetime – far below the 2.1 needed to maintain the population without immigration. Annual rates of natural increase – births minus deaths – will turn negative starting in 2038, census demographers project. That means further population growth will depend entirely on immigration at that point. It also means that the United States, which enjoyed birth rates well above those of wealthy European and Asian societies in the late 20th century, is converging toward the international norm.  

The main reason for falling birth rates is changing preferences among young Americans, particularly young women, studies suggest. Young people simply don’t want as many children as Americans have in the past – and many don’t aim to have children at all. For many young adults, other priorities like careers and travel simply rank higher. Economic considerations like unaffordable housing and student debt also weigh heavily. 

The third coming megatrend is that the share of the U.S. population made up of people 65 and over will soon increase dramatically, rising from 17% of the population today to a quarter of the population by mid-century. In absolute terms, America’s senior population will increase more than 40%. This projection reflects increasing lifespans, but the main factor driving it is the surge in births the United States experienced during the early decades following World War II.  

The fourth and final coming trend involves the country’s ethnic makeup. At the moment, non-White people make up 41% of the U.S. population. In 2050, that number will be 52%. America’s non-Hispanic White population is already declining in absolute terms, and the fastest-growing groups are Hispanics (who will represent 25% of the population in 2050, up from 19% today), Asians (9% versus 6%), and multiracial people (5% versus 3%). 

All of these trends are relatively new. As recently as 2010, for example, the U.S. working-age population – those 25 to 65 – was climbing as a share of the nation’s total population before reversing over the next decade.  

Today, however, graying and shrinking have become the norm around the world. The populations of many countries are already declining, including China, Italy, Japan, Russia, and most of eastern Europe. This group will soon include South Korea and almost all of Europe and Latin America. The global population will likely peak in the 2070s at a little over 9 billion (up from 8.2 billion today) and then start shrinking, according to the Austria-based International Institute for Applied Systems Analysis.  

A skilled laborer from southern Mexico fits cut sandstone into a patio in New Mexico on August 23, 2016. (Photo by Steven Clevenger/Corbis via Getty Images)

Free fall

In the United States, as the number of working-age people per adult consumer falls more than 15% from 2020 to 2050, labor will become increasingly scarce, and employers will find themselves competing ferociously for talent. Unless productivity takes a sharp turn for the better, the U.S. economy will grow more slowly than expected, since economic growth is the sum of increases in working hours plus increases in output per hour worked. 

The decline in working-age Americans will have numerous side effects. As negotiating leverage shifts toward workers, labor compensation will likely grow as a share of the economy, reversing a slide from the 1970s to the 2000s. This will be good news for workers but could hurt stock market values. Rising compensation could also translate into higher inflation. 

Employers, meanwhile, will devote tremendous resources to automating essential processes using AI and robotics. But reducing our reliance on human workers won’t be simple, since easier-to-automate tasks like manufacturing, technical writing, and clerical work comprise only 12% of today’s jobs. Occupations hardest to automate – in health care, education, policing, and other caregiving and protective fields – make up more than 30% of U.S. jobs today. Sales, customer service, transportation, and logistics, which will also be challenging to automate, constitute another 16%. Yet at precisely the moment when America will most need dramatic innovation, that innovation will become harder to come by. The reason is that people are most likely to invent breakthrough products or start innovative businesses when they are young adults or middle-aged. But those age cohorts will soon start shrinking. 

As it ages, America will find itself with excess infrastructure in one sector after another. More than two-thirds of the nation’s school districts are already seeing declining enrollment. Cities will have to close many schools, as Italy, Japan, and numerous U.S. cities are already doing. Total enrollment in colleges and universities has fallen 15% since 2010 and may decline further when the standard college-age population starts shrinking in 2026.  

On the other hand, America is already experiencing shortfalls in infrastructure designed to serve older people. About 70% of Americans will need to live in an assisted living facility at some point. The over-85 population will more than double by 2050, but capacity at assisted living facilities is declining due to labor shortages and regulatory constraints. 

Shrinking cities are nothing new: A quarter of the 100 largest U.S. metropolitan areas have smaller core-city populations than they had in 1950, though the nation’s population has more than doubled since then. In the future, however, many entire metro areas will shrink dramatically. These will likely include localities in America’s poorest regions but also relatively affluent Northeast and Pacific Coast metros where birth rates have fallen far below even the already-low national average. 

Slowing growth will affect America’s housing challenges in unfamiliar ways. Today’s debates about how to squeeze more people into a handful of wealthy big cities and increase density will recede. In shrinking cities, housing policy will focus instead on how to consolidate built-up areas and move lower-income people out of thinning-out neighborhoods with half-empty schools and unsustainable infrastructure – as Detroit has started doing. Growing metros will face the challenge of how to expand in smart, medium-density ways using infrastructure that will remain sustainable when they too stop growing. 

The federal government – already on an unsustainable fiscal trajectory – will face an accelerating rise in the national debt, since the number of working-age people paying into the Social Security and Medicare systems will start dropping after 2030. Health care spending will rise rapidly relative to the size of the economy. Markets will likely expect Washington to finance exploding fiscal deficits by having the Federal Reserve print more money, which would cause higher inflation. 

The United States, like other great powers, will face growing difficulties mustering the personnel and fiscal resources to sustain its military predominance and far-flung commitments around the world. India and Africa, two of the few regions of the world that will keep growing (going from 35% of the world’s population today to 45% in 2050), will enjoy greater geopolitical sway. Shrinking powers like China and Russia may become even more dangerous if they believe their windows of opportunity to accomplish long-cherished geopolitical goals are starting to close. 

A worker operates a robot arm in the production hall of machine manufacturer Trumpf in Chicago, Illinois on March 9, 2024. (Photo by Britta Pedersen/picture alliance via Getty Images)

Within the United States, aging will change the electorate’s priorities. Rising real wages will likely reduce the salience of income inequality as an issue, but older and younger cohorts might start fighting over who should get a larger slice of increasingly strained government budgets. Both political parties will likely have to change dramatically to remain competitive. In an electorate dominated by affluent, racially diverse older people, the disaffected White working-class voters who dominate the Republican base in the 2020s will become smaller in number and likely less influential. But Democrats risk turning off a growing share of voters if they become too associated with identity politics, since older people will likely remain conservative on many social issues. 

The wrong, and right, ways to respond

It’s common to respond to talk of these coming demographic megatrends by asking what government can do to turn them around. But the honest answer is very little. Pro-natal policies – meaning subsidies for childbearing – have largely failed wherever they’ve been tried, including Japan, Norway, Singapore, and South Korea. For similar reasons, they’re also unlikely to work in the United States, where declining birth rates mostly reflect changing priorities. Factors that are addressable through better policies, like unaffordable housing, play a much smaller role in people’s decisions about whether to have children. 

Another suggestion one commonly hears is that, as the workforce shrinks, government and industry should find ways to induce more working-age people who aren’t currently working to get a job. But again, the research shows that such policies can make only a modest short-term difference. The share of working-age people with jobs today is high by historical standards. Most of those people who don’t work have compelling reasons not to, and they aren’t likely to respond to added financial incentives. A modest increase in workforce participation, moreover, would not change America’s long-term trends. 

There’s only one viable path to address the challenges posed by the demographic megatrends outlined ahead: prepare and adapt. A national policy agenda should focus on six themes. 

First, innovation. Stepping up innovation and productivity growth is the most powerful thing America can do to promote broad-based prosperity as its demographics change. This will mean restoring federal research and development investment at least to its late-20th-century level of 1% of GDP – a 50% increase over current spending – and requiring agencies like the National Institutes of Health and the National Science Foundation to redesign grant processes to promote transformational rather than incremental research. Congress should also incentivize labor-saving innovation through the tax code, promote cost-saving construction technologies to accelerate the building of needed infrastructure, and commit America to global leadership in the deployment of AI, drones, and other forms of automation for national defense.  

Next, Congress should step up funding for research in wellness science to increase the span of healthy years enjoyed by older people. America should launch a moon-shot attack on Alzheimer’s disease and other age-related neurodegenerative disorders, following up on past successes in decoding the human genome, increasing cancer survival rates, and introducing new therapies developed through CRISPR gene-editing technology. 

Migrant workers pick strawberries during harvest south of San Francisco, California. (Photo by Visions of America/Joe Sohm/Universal Images Group via Getty Images)

America should also maximize the contributions of its best future innovators and knowledge-generating institutions by strengthening STEM education at all levels and matching the nation’s highest-aptitude STEM students with its best university training opportunities. This means increasing instructional quality and accountability in schools. It also includes recentering colleges and universities on science and technology excellence rather than partisan ideological projects, accelerate the commercialization of technologies developed at universities, strengthening campus-wide cultures of innovation and entrepreneurship, emphasizing academic promise over holistic assessments in admissions to elite colleges, and restoring colleges to a more sustainable financial path. (These proposals and more can be found in a recent Bush Institute-SMU Economic Growth Initiative report.)  

A second theme is to create the right kind of physical infrastructure for an aging, shrinking country. As a forthcoming Bush Institute-SMU report will show, America currently faces a home-shortage crisis and needs to accelerate homebuilding by 50% to keep up with the population and make up for underproduction since the 2008 financial crisis. The key to doing this is to relax land-use policies at local levels. But America also needs to build new homes at medium density rather than low density, in or near thousands of new walkable mixed-use centers, to make life less car-dependent and isolating for its growing senior population. And it should create new incentives for building senior-focused facilities of all kinds, since most seniors won’t be able to afford the full cost of assisted living – which now reaches about $60,000 per year and is sure to rise as labor becomes more scarce.  

Next, we must redesign infrastructure spending to support cities facing the challenge of shrinking smartly. The federal government should help cities consolidate their populations into sustainable areas, since shrinking cities that fail to do so will face a catastrophic falloff in services as their tax base declines. Again, the history of Detroit shows what this can look like. 

Third, Washington must reform spending and taxes to restore the nation to a sustainable fiscal course. To save Social Security, the United States must slow the growth in benefits and gradually raise the retirement age from 67 to around 69 while providing for earlier retirement for people in physically taxing jobs. To shore up Medicare without undermining health care innovation, the government should ask most seniors to pay modestly higher premiums and curb the excessive market power of large hospital systems through more aggressive antitrust enforcement. If additional revenues are needed – and they will be – Washington should raise these primarily by taxing consumption rather than work, perhaps through a value-added tax. Consumption taxes, unlike income taxes, incentivize work, enterprise, and savings – all of which America will need in the decades ahead. 

Fourth, the United States should embrace economic integration with friendly nations. An economy with persistent worker shortages will depend more than ever on efficient divisions of labor across national borders. Protectionist measures will become increasingly self-defeating as the country becomes even less able than it is now to produce everything Americans need. A more constrained United States will also need good friends more than ever. 

Fifth, Congress must allow enough legal immigration to address America’s changing workforce needs while putting an emphasis on admitting high-skilled people, as Canada does. It should also create a more efficient temporary foreign-worker entry program. And Congress should create paths to citizenship for “Dreamers” who came to America illegally as minors with their parents, to ensure they have as much opportunity as possible to contribute to the economy’s future needs. 

Finally, as the United States becomes ever more diverse, it needs to promote social capital to bridge its racial divides. Strong social capital – the connectedness, civic engagement, and trust that make communities function well – can heal divisions, raise educational outcomes, and promote problem-solving. But many American communities currently struggle to broaden social capital across racial divides. At present, the country’s most racially diverse places have low and declining social capital. To turn things around, cities, states, and the federal government should aim for genuinely equal education and career opportunities and renewed commitment to pluralism throughout the nation’s institutions. Building trust and connection across fraught historical divides demands that Americans reckon honestly with past injustices but not obsess over them. 

All these ideas would be desirable even if America weren’t facing vast demographic upheavals in the decades ahead. But for the future that’s fast approaching, they’re essential.