Will the Baby Bust Reduce Inequality?

Part one of a three-part article

Several years ago I was talking to an economist friend of mine.  I said critics were worrying about two separate phenomena. One was technological unemployment, where automation from emerging digital technologies would put millions of people out of work.  The other was that falling birth rates in most of the world would lead to shortages of workers.

My friend wisely said that we don’t know which trend will end up being stronger, but that we shouldn’t worry about both of them, at least not at the same time.  

Now in 2024, the second trend seems to be winning out.  That’s not because we’re adopting technology less – if anything, the Covid-19 pandemic accelerated investment in digital devices.  Software is penetrating everywhere, often jumpstarted as a way to reduce direct human contact.  Most people finally embraced e-commerce, and employers shifted some work to robots.  Automation technology boomed, and now ChatGPT and other artificial intelligence tools may give white collar jobs the same treatment that blue collar jobs have been getting for decades.

Nevertheless, unemployment remains remarkably low – it’s clear that machines are not putting people out of work.  We invented semiconductors and general-purpose computers seventy years ago, yet nearly everyone losing jobs at big companies found positions elsewhere – often in industries created from our rising affluence.  All the chatter about the Great Resignation and “quiet quitting” has faded, the labor force participation rate has largely returned to pre-Covid levels, yet jobs are still available.

Technological unemployment was always a difficult concept to accept anyway, since it had never happened in previous waves of automation.  Proponents said that computers and the internet were far more versatile than earlier technologies, but companies keep using them to support, not replace workers.  Or the new technologies create more than enough jobs, usually better ones, to replace the jobs they do make obsolete.  There’s certainly some interim adjustment, and a reasonable chance that unemployment will rise in the short term.  But the overall macroeconomic picture looks fine.

Meanwhile birth rates have kept falling, not just in Europe and the United States, but in most of the world outside of Africa.  Even India’s birth rate is now below the replacement level.  Aging looks inevitable in most developed countries, especially European and Asian countries that discourage immigration.  That means little growth in the labor force, or outright decline.

Worldwide, many countries now expect substantial population declines, including China, where the working age population peaked a decade ago.  Even the U.S. population is barely growing at all, and is expected to start declining outright by the 2080s.  The state of Vermont, which has the greatest aging problem, has been trying to attract people, but with little success.

In fact, much of the current automation seems more of a reaction to labor shortages than a driver of labor surpluses.  As fewer workers show up, companies must raise wages, and the higher cost finally tips the balance toward robots – so automation reduces shortages.

Our looming baby bust will create many problems, especially over taxes and payments for retirees, as well as inflation.  But perhaps it will have a silver lining, in reducing inequality.