(Bloomberg View) -- As the nation grapples with low economic productivity and what to do about it, there's a cause for optimism in demographics. When the workforce has a higher proportion of people in their 40s, productivity growth tends to be higher. Due to the smallish size of Generation X, the number of people in their 40s is currently at a low point. But millennials will solve that problem.
In three years, the oldest members of the larger millennial generation will start turning 40, and with that, hopefully will drive productivity growth higher. This has important implications for public policy.
In some respects, our current spell of low productivity can be traced back to the Great Depression. Between 1925 and 1935, live births fell by more than 18 percent, from 2.9 million to just under 2.4 million. A labor market with 20 percent unemployment tends not to be the best for kicking off a baby boom. And then when those few Depression-era babies hit their prime child-birthing years, combined with the stepdown in birth rates seen during the 1960s and 1970s, we had a baby bust. Live births in the U.S. fell from a high of 4.3 million in 1957 to just 3.1 million in 1973, a staggering drop of 27 percent. And it's those few special unicorns born in the 1970s who have turned 40 over the past several years. The share of workers between the ages of 35 and 44 is currently hovering near a 35-year low.
But this percentage should rise in coming years. By 1980, live births in the U.S. were up to 3.6 million, and by 1990, four million. And that's to say nothing of immigration, which was at very high levels from the 1980s until the great recession.
Dartmouth professor James Feyrer found that a 5 percent increase over a 10-year period in the cohort of workers in their 40s is associated with a 1 to 2 percent increase in productivity growth annually over that decade. A skeptic might wonder what's so special about workers in their 40s, and if this is just a statistical quirk. But we know that there are consistent and predictable patterns of behavior for each stage in life.
The young attend school, perhaps including college. People get married and have kids in their 20s and 30s. They buy houses in their 30s and 40s. Labor force participation peaks between ages 35 and 44. Voter turnout in elections follows predictable patterns, with the old being more likely to vote than the young. Homeownership rates peak between ages 70 and 74, when downsizing begins at 75. And financial advisers typically recommend that the young be more aggressive with their investments, while older clients be more conservative. The peak of the stock market in the year 2000 occurred when baby boomers were in their 40s and early 50s and were loading up on stocks.
There are a couple of policy recommendations that go along with this analysis. The political debate surrounding immigration right now is polarized and often centered on race, religion or country of origin. While perhaps unrealistic, centering it on employment and productivity growth may make more sense. Even a country with a history of caution surrounding immigration like Japan is drawing in foreign workers now to address its worker shortage. If the U.S. were to introduce a points-based immigration system, giving weight to mid-career workers may make sense.
Additionally, one group of people in their 40s tends to have life pressures that often cause them to leave the labor force -- parents, particularly mothers. Policies that support working parents -- whether they be subsidized child care, flexible scheduling or remote work -- could increase labor-force participation for mid-career workers, along with productivity and economic growth.
Demographics may be destiny, and whether a country has a bounty of productive 40-something workers is to some extent a function of family planning decisions made decades ago. But a country like the U.S. that's an attractive destination to workers from all over the world, and which has a weaker safety net for families than most other wealthy, developed countries, has some levers it can pull to drive productivity and ultimately economic growth higher.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Conor Sen is a Bloomberg View columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.
To contact the author of this story: Conor Sen at csen9@bloomberg.net.
To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net.
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