Households: Who are They?

To understand the dramatic changes in the structure and performance of the labor market that have taken place in the post war era, it is essential to begin with a brief overview of some important demographic changes. Population is the driving force in an economy with population growth providing workers for the nation's offices and factories and buyers for the goods and services produced in those offices and factories. In the remainder of this section we will examine the growth, age, race and ethic distributions of the population as well as its regional and urban-rural mix. As you will see later, the demographic changes identified here will also affect the other markets, but the focus here will be on their impact on the labor market.

Population Size and Growth

Let us begin at the beginning, with the size of the US population. The population of the US in 1990 was nearly 250 million, making it the third largest country in the world and home to approximately 5 percent of the world's people' . Only China and India, with 1.1 billion and 833 million people, are bigger. As for growth, in the 1980s the US was growing at an average yearly rate of 1 percent, faster than most of the developed world, but substantially slower than the developing world. In the final column of the table below are estimates of the population in 2010 based on the admittedly simplistic assumption that future growth will equal current growth. Under these assumptions, the ranking of the world's largest countries will change substantially. Falling out of the top 15 (1980 ranking) will be the high income countries Germany, France, Italy, and the UK, replaced by the low income countries Iran, Vietnam, Egypt, and the Philippines. Stated somewhat differently, poorer, developing countries will account for 95 percent of the population increase of the world's 20 largest nations between 1990 and 2010.

World Population Estimates

What explains the differential rates of population growth? To understand the differentials in the rate of population growth, it is useful to begin by recognizing that there are three separate influences on population size: births, death, and net immigration. A nation's population will grow more rapidly because there are more births, fewer deaths, or there are more immigrants entering the country. At the present time, the statistics on international migration are quite limited , but we do have data produced by the US Bureau of the Census on birth, death, infant mortality, and total fertility rates. In the table below the demographic statistics for a small sample of countries selected to provide the upper and lower boundaries for these statistics are presented. The US has a birth rate above that in most of the world's industrialized countries and the newly industrialized countries (NICs's) of South East Asia, while its death and infant mortality rates are above those in a number of Middle East countries including Syria, and Iraq, East Asian nations, as well as the industrialized countries and NICs. The result of these differences is a total fertility rate above, and a life expectancy significantly below, the rates of other industrialized countries.

It is unlikely, however, that the growth rate in the US or any of the other nation's will remain constant. In the last decade population in the US continued to expand, 22.2 million, but it did so at a decreasing rate. This secular decline in the growth rate is apparent in the diagram below. The growth of the population, which stood at 33 percent at the turn of the 19th century and 22 percent at the turn of the 20th century, threatens to fall below 8 percent as we enter the 21st century.

In addition to the secular decline, there have also been some notable variations around that downward trend. There were the exceptionally sharp declines in the 1860s and the 1930s, associated with the Civil War and the Great Depression. After bottoming-out in the Great Depression of the 1930s, the birth rate rose slightly through the mid 1940s and then increased sharply in the late 1940s, ushering in the "Baby Boom Generation". These 'boomers' are those born between the late 1940s and the early 1960s, a generation bracketed by the end of WW II and the beginning of the Vietnam War.

A better picture of the baby boom generation can be found in the time-series graph of birth rates. The boomers represent the 'bulge' in the graph. During the 1950s and 1960s, as the birth rate peaked, population growth reversed its century long pattern of decline. Since the early 1960s, however, population growth in the US has followed the birth rate and resumed its downward trend, although there has been a modest reversal in the birth rate since the late 1980s, the baby boomers 'echo'. The population growth rate, that had peaked in the 1950s at 18.5 percent fell to less than 10 percent in the 1980s.

Age Distribution

The population of the US, in addition to growing more slowly, is also aging. Some indication of the impact of these baby-boomers on the age distribution of the population is provided in the graph below. The aging of the baby-boom can be seen in the movement over time of the peak in the population distribution graph to the right. It should be obvious why this has been a favorite generation of marketers. In the 1950s we were building homes to house the new arrivals, and then we built schools, first grade schools and high schools, then colleges and universities. And when they left school, we built apartment, houses, and something new, condos, for them to live in. As the baby boom aged, the largest cohort passed from the 5-14 year age bracket in 1960 to the 24-35 age bracket in 1990. You may also note the aging of the baby boomers in your own communities as you drive by the empty or converted grade schools that housed the 1950s children. As we look forward, it is also nearly impossible to ignore the boomers when making any long term economic forecast. At the top of the list of 'effects' of the aging of the boomers would have to be the forecasts of falling home prices and the insolvency of social security.

The aging of the population can also be traced to increasing life expectancies. People are living longer today, as evident in the diagram below, and the National Center for Health Statistics expects the trend to continue into the future. In 1940, when the social security system was taking form, life expectancies at birth for males and females were 60.3 and 65.2, sharply lower than the current figures of 72.1 and 79, and the projections of 74.4 and 81.3 for the year 2010. Looked at somewhat differently, in 1940 a 20 year old male could be expected to live only 2.8 years beyond retirement at age 65, while in 1990 he could be expected to live nearly 8 years beyond retirement at age 65.

Life expectancies also vary significantly across gender and race. As the diagram below indicates, life expectancies of males have been consistently lower than those of females, while the life expectancies of blacks are lower than those of whites. For example, a 25 year old white male can be expected to live to nearly 73, about 4 years more than a nonwhite male and 7 years less than a white female.

Offsetting the effect of the baby-boom and longer life expectancies on the age distribution, has been the explosive growth in immigration. Immigrants tend to be younger than the resident population, and in the US we have witnessed a dramatic increase in immigration in recent years. In the past twenty years of 'peace', the political and economic upheavals have created a massive movement of people across international borders, a process that has been accelerated by the restructuring of Eastern Europe, and the US has been a favorite destination. Since the end of W.W.II, the number of individuals moving into the U.S. has risen steadily so that by the 1980s, the number of immigrants into the U.S. was approaching the record highs recorded in the beginning of the century. In 1990, more than 1.5 million legal immigrants were admitted to the US.

The composition of the immigrants has also changed substantially in recent years. In the 1960s, nearly 40 percent of the immigrants to the US originated in Europe, but by the 1980s Europe's share had fallen to 10 percent while Mexico and Asia accounted for nearly 80 percent of the immigrants. It is therefore not surprising that the increasing numbers and changing composition of new arrivals has brought about renewed calls for restriction on immigration in the US. We witnessed much the same phenomenon during the last great immigration surge as the origin of the majority of immigrants shifted from northern and western Europe to southern and eastern Europe. We are also seeing much the same backlash against immigrants in Europe, especially in with the 'skin heads' attacks in Germany in 1993.

The net effect of the longer life expectancies, lower birth rates, and higher immigration has been a dramatic increase in the size of the elderly population. In the past twenty years the elderly population has been growing approximately 170 percent faster than the total population. By 1990, nearly one of every eight individuals in the US was over 65, up from one of twelve in 1950. And the elderly are getting older. In the two decades ending in 1990, the population over 75 grew two-thirds faster than the population 65-74. In the next twenty years the very old will expand 130 percent faster than the not-so-very old so that by 2010, 13 percent of the population will be over 65 with 60 percent of these being over 75.

Age Composition of the Population

Source: Statistical Abstract of the United States: 1993

And if you are troubled by that, wait till you see what happens in the decade ending in 2020, as the leading edge of the baby boomers will be approaching today's normal retirement age. According to the Bureau of Census projections, after slowing in the 1990s, the growth rate of the elderly will skyrocket, reaching a phenomenal 75 percent. By 2020, more than one of every five people in the US will be over age 65 and nearly one of every ten will be over 75.

The obvious problem then will be, who will be working to pay the taxes for the retirement checks? It would appear that there may not be enough people, at least if we are to maintain the current system.

Household Formation

An often overlooked, but important demographic event has been the divergence between the growth rates of the population and the number of households. After the 1950s, a decade of nearly equal rates of household formation and population growth, household formations began to outdistance population growth. The divergence peaked in the 1970s when, as a result of the movement of the baby boomers into their 20s, declining rates of marriage and later ages at first marriage, rising divorce rates, and increasing wealth of the elderly, households were expanding nearly 150 percent faster than the population while nonfamily households were expanding nearly 500 percent faster. By the 1980s, however, the differentials had fallen to 50 percent and 150 percent respectively.

Regional , Racial and Ethnic Population Redistributions

In recent years there has been a substantial change in the composition of the population. As the graph of regional population shares indicates the Northeast, which in 1790 accounted for nearly one half of the nation's population, has seen its share of the population fall as a result of slower than average population growth. This movement was only temporarily slowed around the turn of this century as a result of massive immigration, mostly through the port of New York, that accompanied the rapid industrialization and urbanization of the U.S.

Following W.W.II, the share of the nation's population living in the Northeast and Midwest resumed their fall. Between 1950 and 1990, the Northeast's share of the nation's population fell by nearly 20% while the share living in the West increased by more than 40%. It is evident from the accompanying map of population growth rates by states for the period 1950-1990 that there have been two focal points in this growth, Florida in the Southeast and California, Arizona, and Nevada in the Southwest.

The spatial pattern of growth can be attributed to three separate phenomena. First, there was the migration of individuals out from the Northeast and Midwest toward the South and West. In the 1980s, net out migration from the Northeast and Midwest averaged approximately 420,000 a year. Second, there is the aging of the population which helped fuel the growth in Florida, a state where in 1991 approximately one of every 6 individuals was older than 65. The final factor was the changing geographic profile of immigrants to the U.S. As indicated earlier, increasingly immigrants are being drawn from Mexico and Asia and these immigrants tend to favor California. In 1989, 41 percent of immigrants admitted to the US designated California as their intended state of residence, nearly 3.5 times the number headed toward the second most popular destination, New York. In large part this can be attributed to the fact that nearly 41 percent of the Asians and 60 percent of the Mexicans were headed for California.

Also evident in this time period has been a change in the racial and ethnic composition of the population. As a result of differential birth and immigration rates, the population of the US has become less White and more Hispanic, a trend that is expected to continue over the foreseeable future. In 1990, approximately 8.2 percent of the US population was Hispanic and 10.5 percent was Black, and according to government projections, by the year 2010 these shares will rise to 10.5 and 12.5 percent.