Declining Fertility Rates: Another Reason to Really Open Up Immigration to the United States

Much like with other developed countries, the United States is experiencing demographic challenges. Aside from an aging population, the United States has a lower fertility rate. This decline in fertility rate can be explained by a number of factors, including more education and career opportunities for women, greater access to contraceptives, less stigma surrounding living child-free, and increased costs of children or other macroeconomic forces. Declining fertility rates are contributing to economic and social pressures as a result of labor shortages. 

Having more children seems like a reasonable solution to the problem. However, as Cato Institute research shows, "once a country's birthrate has fallen below the replacement rate, recent history indicates that it tends to remain there." This leads me to recommend a more salient solution to the demographic issues: more immigration. Historically, the United States by and large allowed for a greater number of immigrants to enter the country. That changed with President Trump when he substantially limited legal immigration to the United States. Unfortunately, President Biden has largely kept those caps comparable to the Trump administration. 

Last week, the premier business school, Penn State University's Wharton School of Business, released a paper entitled "U.S. Demographic Projections: With and Without Immigration." One finding is that the total fertility rate (TFR) is projected to be an average of 1.7 over the next few decades. This is problematic because the TFR is below the replacement rate, which means a decline in population (see below). 

Why would greater immigration be good for the United States to help alleviate the demographic crisis? The data above provides a good hint. Aside from migrants being typically younger than the receiving country, the International Monetary Fund (IMF) provides an explanation: "It [greater immigration] would reduce population decline, keep the size of the labor force from shrinking, improve age dependency ratios, and produce positive fiscal gains." 

What we see from the Wharton School [below] is that we would need to more than triple current immigration to maintain our current worker-to-retiree ratio of about 3:1 by 2070. If we go with status quo, that ratio will fall below 2:1. This ratio decline is important considering that Social Security and Medicare are two major drivers of the U.S. federal budget. France illustrates that Social Security benefits cannot be sustained with a low worker-to-retiree ratio. Japan also ceased its historically limiting immigration policy because it hit demographic reality and shows what happens when an aging policy shuts its doors off to immigration.

The solution from certain anti-immigrant elements is to secure the border and further restrict immigration to this country. I am not going to cover the situation with the U.S.-Mexico border here today. What I will say is this. Allowing for more immigrants will help with demographic woes in the long-run. By extension, immigrants will improve economic outcomes by creating greater dynamism. A paper from the University of Chicago estimated that full immigration liberalization would translate in increasing economic welfare by about threefold (Desmet, 2018).

As I brought up as recently as December, more immigration would create macroeconomic growth, not to mention alleviate the current labor shortage that the United States is experiencing. The United States has historically developed a strong economy and a robust labor force with greater immigration than its peers. If the United States wants to continue to be that shining city on a hill, it will create comprehensive immigration reform that will allow for greater immigration. Not only will this help the U.S. economy, but it will mitigate the effects of a lower total fertility rate.