Millennials having fewer kids could be a drag on the economy for the next decade

But that kind of spending won’t be enough to offset the drag of a shrinking population on the economy over the long run, especially considering that the US birthrate has collapsed over the last half-century, economists told Business Insider.

In 2022, there were just 11.1 births per every 1,000 people, according to the Centers for Disease Control and Prevention. That’s a 53% plunge from what was recorded in 1960, when there were 23.7 births per every 1,000 people.

The shortage of babies has been particularly acute since the pandemic, according to James Pomeroy, HSBC’s global economist. The national birthrate is now dropping around 2% each year, he estimated — and it didn’t pick up in 2023, like experts originally expected.

That puts the US at risk of seeing “extremely low” population levels over the long run, not unlike countries like China, where the population decline is so dire the government is doling out cash to convince people to have more kids. 

“What you’re talking about is these birth rates dropping very, very low levels, which over the course of time has huge impacts on the economy,” Pomeroy said. “And then by the time you get to 2030, you’re talking about a birth rate that is wildly different to what was in the assumptions made at the beginning of the decade.”

The impact of millennials having fewer kids will likely be worse than the impact of aging boomers — and the most dire consequences could come 10-15 years from now, Pomeroy estimated. He pointed to Japan, which had a similar birth rate in the 1990s as the US does now. Its economy saw the “worst bit” of growth around a decade later, when its workforce dwindled and the nation posted several years of negative GDP growth.

The shrinking birthrate in the US could drag down GDP by 1-2 percentage points each year, according to Todd Buchholz, a former White House economist. Over several decades, that’s the equivalent of slashing the US growth rate by a third, he estimated, or wiping out the estimated productivity increases stemming from artificial intelligence. In the worst-case scenario, GDP growth could nosedive 3-4 percentage points, Pomeroy warned. 

Fewer Americans being born means fewer workers in the economy. 

“You find it more difficult to find somebody to cut your hair, do your nails work on, set up the x-ray machines at the hospital,” he said. “So the sheer decrease in the number of people … becomes a problem.”

Declining fertility rates also mean it will be harder to bear the brunt of Social Security payments, particularly as boomers age into retirement. Baby boomers are estimated to exert “peak burden” on the US economy in 2029, which is when all boomers will be 65 or older.

“We will have a great deal of trouble … figuring out how to pay the retirements. The promised retirement payments for senior citizens — Medicare and Social Security — are going to go in vast deficits,” Buchholz added.

If the birthrate doesn’t increase soon, he estimates there will eventually be two full-time workers for every retiree, down from around 20 workers per retiree in the 1930s. 

“That is simply not sustainable,” he said.

Downward spiral

It’s hard to convince people to have kids. 

Once the birthrate in an advanced economy starts to decline, it generally continues to do so, Pomeroy and Buchholz both noted. That’s been the case for China and Russia, two countries that dealt with low birth rates for decades, and are now hobbled by demographic issues. 

Government policies that support those who have children could be one way to boost the birthrate — or at least, prevent it from falling further. Boosting the supply of available homes, which can push down sky-high housing costs, will also help, Pomeroy said, though that will likely take decades to build enough inventory to meet demand. 

The most important thing to encourage people to have more kids might be a cultural shift in how we talk about children, Buchholz says. He pointed to the chatter among millennials about how much money you can save by going child-free — around half a million dollars, according to one CNBC analysis.

In the US, mounting costs for everything from shelter to healthcare to education weigh on younger generations’ decision to have kids. On top of that, existential uncertainties stemming from things like the climate crisis to technological upheavals like artificial intelligence don’t make the decision any easier. 

“I think it’s a net negative to have fewer children when the choice is between having a child and investing in a new Sony PlayStation,” Buchholz told Business Insider. “Now it seems crude, vulgar, and inhumane to admit that people do, but people will openly say, having a child is expensive.”

Many DINK couples say they don’t regret their lifestyle choices — much to the vexation of their critics – but that blasé attitude could be the very problem itself, Buchholz speculated.

“‘At the end of my life, I was surrounded by a machine tethering me to oxygen, a nurse, and a lawyer.’ That seems like a very dreary way to end life,” Buchholz said. “And so I think the narrative has to change. So it’s not about the fear of missing out and only being able to live once. People who have children feel that they live more than once.”

This story was originally published in February 2024.