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Home Publications Blogs Beat the Press Horrors: We're Going to Have Both Too Few and Too Many Workers!

Horrors: We're Going to Have Both Too Few and Too Many Workers!

Thursday, 29 November 2012 16:56

Yes, things are really dire. Readers of the NYT, Washington Post and other major news outlets have been treated to large numbers of stories in recent months telling us that technology is going to make large segments of our workforce obsolete. According to these stories millions, or even tens of millions, of people will be unable to find jobs in the economy of the future.

But wait, it's getting even worse. Not only are we not going to have enough jobs, the Post now tells us that we will not have enough people. It reports on a new study showing that the United States had the lowest birth rate since 1920 last year. The article tells us:

"The decline could have far-reaching implications for U.S. economic and social policy. A continuing decline would challenge long-held assumptions that births to immigrants will help maintain the U.S. population and provide the taxpaying work force needed to support the aging baby boomer generation."

So there you have it, not only will we not have enough jobs, the Post is telling us that we won't have enough people. It can't get much worse than that!

This shows us the level of seriousness of Washington policy debates. We are supposed to be simultaneously terrified by diametrically opposite problems. To make this as clear as possible, just in case any Washington Post editors are reading, if we have a shortage of labor due to a slow growing or even declining population, then we don't have to worry about large numbers of workers being unable to find jobs. There will be a labor shortage. This implies rapidly rising wages and employers who are willing to provide whatever training workers need to do the jobs available.

This means that at least one of the grave problems currently being pushed by the Serious People does not exist. A little arithmetic (a skill in short supply in policy circles) should make it clear that inadequate population growth is not going to be a dire problem. The figure below compares the impact on workers' living standards of the projected increase in the ratio of workers to retirees over the next twenty three years with various rates of productivity growth. (You can find the explanation for the calculation here.)


Source: Author's calculations.

The basic story is that even a 1.0 percent rate of productivity growth (the slowest we've seen in the post-War period) swamps the impact of demographics on living standards. Of course if technology is going to displace huge numbers of workers, as we're being told, then we will see much more rapid productivity growth so the relative impact of demographics will be even less important.

In short the demographic scare story is sheer silliness. It is of course unfortunate if people who would like children feel that they are too financially insecure to have them, but the idea that we should be troubled by a less crowded, less polluted country? As they say in our nation's capitol, only in the Washington Post.

Comments (10)Add Comment
written by Last Mover, November 29, 2012 5:25
This is obviously not a contradiction but a conspiracy by austerians.

Technology is used to reduce wasteful demand for too many workers. Birth control is used to reduce wasteful demand for too many children who would become wasteful

The result is perpetual full employment attained from the supply side and complete elimination of Keynesian spending from the demand side forever.

That leaves retired baby boomers for whom excess supply is to be addressed by Obamacare death panels.

It was supposed to be a compartmentalized secret but WaPo slipped up and released all three parts in the same article.
I'm not so sanguine
written by Brian Dell, November 29, 2012 7:59
If the problem is large numbers of people not in the labour force, though, declining numbers of people in general is not going to solve that problem.

The number of men between 25 and 54 in the work force seems to be in a secular decline that predates the housing bubble.

I don't expect Krugman to call attention to it, because it undermines his argument, but it seems that every few months that we get closer to 2020 - that is, move along the X axis of a potential GDP line - the CBO revises the line, shifting the curve to the right, such that by 2020 the economy is going to hit potential GDP just by continuing to chug along at about current growth rates with no additional stimulus! This is, of course, the same thing as saying that the economy is already at full employment and the CBO is just progressively realizing that!

The flipside of the CBO restating potential GDP downwards is an upward revision of the extent to which the deficit is structural, and if the deficit is structural that undermines the case for postponing austerity.

What am I missing here?
written by Kat, November 30, 2012 8:30
I'm sorry to ask this question here, but I read this today in the NYT article on the changing tax burden. This was about corporate tax rates:
Economists agree that taxes on business are passed on to investors, reducing profits, and to workers, reducing wages. Upper-income households bear the brunt of these taxes, and corporate tax collections have fallen sharply.
Is this true? Is this something that economists are universally in agreement on?
written by skeptonomist, November 30, 2012 8:34
Potential GDP is usually estimated from the trend of past GDP, so when the economy has been down for a while potential GDP goes down also:


Since economies are actually cyclic, potential GDP is not prophetic, and projecting it far into the future gives wild and unrealistic swings.
passing on taxes
written by Paul Meyer, November 30, 2012 9:51
@Kat, What I remember from econ 101 is that whether a tax (or any extraneous cost) gets passed on to consumer or are born by the company depends on the price elasticity of demand. If the elasticity is small (a small price change does not change demand so much) then a larger portion of the tax get passed on to consumer. Companies with market power (i.e. monopolists, oligopolists) will pass much of taxes on to customers.

What the company does have to pay has to come out of profits or cost reductions -which could include wages. But wages are "sticky" as they say, so my guess would be that executive compensation/dividends is affected more than the pay of the average worker (though wages can stagnant so that in the presence of inflation, workers over time are getting paid less.) I don't know which is more likely.

Two things, the sentence is odd 1) It doesn't take economists to agree on it, only someone who can add (though it did not mention the effect on prices/consumers), did someone imagine that the owners of companies (i.e., investors) are somehow not on the hook for taxes at least in terms of a "cut" of the profits? 2) It is a bit of non-sequitur "and corporate tax collections have fallen sharply". Meaning what? Is the author trying to imply that a decline in tax collections somehow implies increasing wage declines or taxes paid by owners (it doesn't, afaict).

And anyway, to the extent upper income households have to give up some of the profits to pay the corporate tax, that is a good(!) thing, hopefully all of the tax burden falls on them. But they aren't writing checks to the IRS, it is coming out of their income stream (not unlike taxes withheld on one's paycheck - except there is no settling up at the end of the year for underpayments).
written by Kat, November 30, 2012 10:13
Thanks, Mike.
I guess at least they didn't say that the cost is passed on to consumers which I have heard before. But, if you do have a monopoly I guess this could very well be the case.
At any rate, I imagine lower corporate tax rates are passed on to the general populace in the form of higher property taxes, sales taxes, and user fees.
corporate tax
written by Brian Dell, November 30, 2012 3:58
Kat, the Tax Policy Center's rule of thumb is to place 20% of the corporate tax burden on wages.

When NPR identified six policies that economists support back in July, Dean Baker agreed that economists support elimination of the corporate tax. Rich people should be taxed directly. However, Dean expressed his concern at the time that as a practical or political matter, he didn't "see much likelihood of the sort of increase in individual income taxes on the wealthy that would come close to offsetting the impact of lost corporate income taxes." Dean also noted that the Citizens United ruling could give people who control corporations the unfair advantage of using pre-tax dollars to support political causes of their choice if corporations were not taxed.
written by liberal, November 30, 2012 8:29
Kat wrote,
Is this true? Is this something that economists are universally in agreement on?

I'm not sure---google on "tax incidence corporate" or something---but my recollection is that the incidence of corporate taxes is relatively controversial. (More so, than, say payroll taxes, which IIRC falls mostly on the employee, even if remitted by the employer.) Of course it probably varies depending on the sector...
written by liberal, November 30, 2012 8:33
Brian Dell wrote,
Rich people should be taxed directly.

The problem with that argument is that corporations are legal entities that are separate from their shareholders, so the claim that they shouldn't be taxed separately is not nearly as simple as it looks.
corporate taxes
written by PJM, December 01, 2012 2:39
There is a point about the tax system being game-able by virtue of its complexity. On the other hand, this is mistaking the forest for the trees (as is also the case with most proponents of campaign finance law).

Our system is game-able without the existence of a complex, corrupt tax code and bad campaign finance rules, the arrow of causation is being reversed. Compared to "best practice" standards of parliamentary systems, our system is undemocratic, unaccountable, manipulable by insiders and power brokers, and at the best of times maddeningly slow/inefficient.

It is the one reason I have a problem with Dean's stance on trade, the tendency toward corruption that some sort of protectionist regime would contribute to our polity would be insignificantly marginal compared to the pre-existing corruption of our so-called democratic institutions.

The place we most need competitiveness, informational symmetries, etc., is our politics, even more so than our markets. Most Americans, even social scientists, have little idea how backward and dysfunctional American democracy truly is. In politics, the rules structure the system, predetermine outcomes. Disproportionality, requirements for super majorities, non-existence of accountable parties, and so on, matter. The rules matter.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.