Sunday, February 19, 2017

Stork Theory

Demographics and GDP

The contribution from net immigration to total population growth has risen from 30% in the 1990s to 40-50% recently as the natural increase in population has slowed. The effect of immigration on growth of the labor force is even more pronounced as immigrants tend to be younger and therefore more likely to participate in the labor force than the native-born population. As a result, net immigration currently accounts for virtually all of the 0.5% trend increase in the labor force.
Reduced immigration would result in slower labor force growth and therefore slower growth in potential GDP—the economy’s “speed limit”. In addition, academic studies suggest there could be negative knock-on effects on productivity growth. As a result, we see immigration restrictions as an important source of downside risk to our 1.75% estimate of potential growth.
We will hear the stork theory often. The claim is that the American system is unsustainable because little brown people are needed to pay for  boomers. Problem is that the little browns cannot afford the boomers, too  expensive.

No comments: