By Guest commentary Monday, July 7th, 2025

By Vlad Vaiman

In recent years, birth rates dropping well below replacement levels has caused a worldwide seismic demographic change. Despite increased life expectancy, many nations — including the United States — are currently seeing a fast demographic transition toward “youth scarcity,” where fewer young people must sustain a fast-growing retiree population.

Historically, global social and economic systems have relied on a steadily rising working-age population to support development and wealth.

However, the modern-day reality of decreasing birth rates, increasing lifespans and earlier retirements, exposes the flaws in this approach and emphasizes that without significant intervention, current paths are unsustainable.

Left ignored, younger generations will inherit an economic landscape marked by slower development and moredependence on other generations, as noted in the most recent report by McKinsey.

These demographic patterns have significant financial ramifications for the U.S. and highlight how urgently this problem must be addressed.

At 1.66 children per woman, the current U.S. fertility rate is much lower than the replacement rate of 2.1 required to keep population stability. States like South Dakota (2.01) and Texas (1.84) have higher fertility rates, in contrast with areas like Vermont (1.35) and Washington, DC (1.24). (This statistic varies by location.)

The steady aging of the American population is compounding the issue of declining fertility. 

These demographic shifts will place increased pressure on California, with the Los Angeles region facing the greatest impact. California depends on its diverse and youthful workforce to drive its service-based economy while immigration supplements this workforce pool. 

The combination of falling birth rates among local populations, along with expensive housing which prevents family formation, will likely lead regions like LA toward workforce shortages in critical industries including healthcare, education, and logistics. 

Local governments need to work on innovative policies to maintain workforce participation while addressing affordability concerns and fostering intergenerational equity.

Projections show that the working-age group (ages 15 – 64) will drop significantly in the following decades, which will increase the dependency ratio. Labor markets and retirement infrastructure will be severely strained by the U.S. population aged 65 and above, which is expected to greatly exceed present levels by 2050.

The support ratio of the number of working-age people per retiree provides a striking picture of this change.

The U.S. now has a support ratio of around 3.9 working-age individuals per retiree. This ratio likely will drop drastically by 2050 to about 2:1, meaning that just two workers will cover the economic responsibilities of every retiree.

Already there is increased financial pressure on pension plans and savings as Americans live longer and retire younger. In Japan, 26% of people aged 65 and older are currently active in the labor force, compared with 19% of Americans.

Historically, the U.S. has a yearly GDP per capita growth rate of about 1.4%. If productivity increases fail, demographic changes could, however, slow this increase annually by 0.4% to 0.8%.

Either each worker must raise their weekly labor output by one to five hours, or production must double or perhaps triple to offset this drop.

Dependency on pensions and healthcare is predicted to explode as the workforce decreases and the retiree population increases.

Without significant reforms, as much as half of labor-generated income could be redirected to pay retiree benefits, therefore compromising the country’s economic vibrancy and sustainability.

PROACTIVE SOLUTIONS

Immigration emerges as a possible partial fix for the approaching demographic catastrophe. Meaningful and targeted immigration policies with a strategic focus could help sustain ongoing economic development and help offset the declining workforce. Still, depending only on immigration isn’t going to solve the problem. 

Immigration reforms have to be accompanied by thorough policies aimed at increasing workforce participation and productivity.

Given the population imbalance, more Americans likely will be required to work past the conventional retirement age. As a result, U.S. companies will need to modify their employment rules and workplace settings to accommodate an older workforce efficiently.

Dealing with these issues calls for calculated legislative actions. Important first steps would be to encourage older citizens to work by providing flexible schedules, incentives to postpone retirement, and better childcare and parental leave support systems.

At the same time, productivity growth has to be paramount in economic goals.

Automation, artificial intelligence and technology innovation investments have great power to counterbalance diminishing workforce numbers. Concurrent with technology development, targeted educational reforms and workforce reskilling programs help guarantee labor market agility and preserve our nation’s economic competitiveness.

IMMIGRATION REFORM

Immigration reform is another crucial policy subject. 

Encouraging qualified immigration not only solves labor shortages but also boosts economic vitality. Immigration changes must be accompanied by effective integration measures to allow immigrants to fully support social cohesivenessand economic development.

Southern California is in a unique position to take charge and set an example in this area. The LA region stands as an optimal testing ground for integrative workforce policies because it has historically served as an entry point for immigrants while hosting a wide array of industries.

State agencies working together with educational institutions and private employers can establish programs that reskill new workers while building career paths in high-demand fields.

Through proactive action, California has the chance to show that inclusive economic development works hand-in-handwith demographic resilience to create a stronger society.

In essence, the U.S. faces significant demographic headwinds, even though its demographic situation is somewhat favorable relative to rapidly aging nations such as China, Germany and Japan.

The U.S. will face slower economic growth and rising financial constraints on the next generations without major policy changes to increase labor participation, boost productivity, reform retirement and healthcare systems, and stabilize fertility rates. 

Effective navigation of this demographic shift and guaranteed ongoing economic vitality depend on proactive, smart policy action.

Vlad Vaiman is a professor at California Lutheran University’s School of Management.