Expect slower growth in the U.S. economy unless the government takes action on education and immigration.
That’s the gist of a new research report from TD Economics that examines economic growth after the U.S. recovers from the Great Recession. The U.S. is likely to grow at around a 3.0% rate over the next few years, close to its historical average, states James Marple, a senior economist at TD Economics.
But after the economy picks up the slack from the recession, says Marple, growth will likely then slow to around 2.0%. He bases that on two primary factors – smaller expansion of the labor force and underperforming labor productivity.
Labor productivity (real output per labor hour worked) is being hampered by reduced investment spending over the past few years and a slowdown in technological innovation. If workers don’t have more and better tools to work with, productivity suffers.
The aging population will also impact labor force growth, notes Marple, with “96% of the population growth over the next five years…be[ing] people aged 55 or more.” That will cut labor force growth from an average of 1.0% a year to just 0.5% annually.
The slowdown in economic growth to 2.0% would have a host of negative effects, including lowering profits and investment returns and making it more difficult to pay for the rising healthcare consumption of an aging U.S. population.
Achieving better educational results for our young people and increasing investment in R&D would help the situation but Marple says the most immediate relief would come from boosting immigration.
“Raising the growth rate of the population by 0.1% annually would require annual net migration to rise by about 40%, from 700K annually to 1.1 million,” Marple states, a rate the U.S. achieved in 2001.
To do that, Marple says the U.S. should look at the immigration reform bill passed by the U.S. Senate in 2013. Passage of such legislation would raise the population by 3.0% over the next decade. And importantly, the “vast majority of these immigrants would be younger adults in their prime working years,” he notes. Immigrants, by the way, who historically have contributed to higher rates of innovation and entrepreneurship.
Immigration reform has been urged by many in manufacturing. In January, NAM President Jay Timmons stated, "Immigration reform is an essential part of building a 21st century workforce and, simply put, it’s the right thing to do." But as with too many issues in Washington these days, being the right thing to do is just not reason enough to take action.