Analysis: Latinos and the Demographic Cliff

Jan. 2, 2013 — -- The face of America is changing.

One of the most pressing implications is that immigrants and communities of color are poised to play a major role in helping fund pensions and healthcare for aging Americans over the next 50 years. However, shrinking birth rates, diminished immigration and a lack of investment in educating the next generation of workers could deal a serious blow to government programs like Social Security and Medicare, experts say.

Some have called the possibility a "demographic cliff." And, for better or for worse, Latinos are at the center of the debate, and will play an integral role in what happens to our tax and fiscal structure just a decade down the road.

First, the birth rate. Hispanic women are having fewer babies, a trend that has severely hastened the decline in the overall birth rate in the United States. In 2011, the fertility rate per 1,000 women was 63.2 births. And at our nation's fertility peak in 1957, the rate was 122.7 per 1,000. Gretchen Livingston, a researcher for Pew Hispanic Center said in an interview with NPR that Latina and foreign-born women have made all the difference in the national measures.

"Since about 2007, immigrant women have really led the dramatic decline in births that have occurred since that time," Livingston said.

This is where immigration comes into play. With lower birth rates, some say we should be looking to new immigrants to bolster a graying workforce. But whether they'll keep coming is questionable, judging by current immigration flows.

Immigration from Mexico, which has been the number one source of immigrants in the past decade, has slowed to net zero over the past year.

Both lower immigration and decreased birth rates, which are partially spurred by the the depressed economy, have some demographers worried. In an article called "Double Bind" in The Economist earlier this month, the author warned that the combination could bring "long-term trouble ahead," because there will be too few working-age Americans to bear the burden of pensions and health care for the elderly:

"A declining birth rate poses all sorts of problems for what's left of our social safety net. In 20 years, every last one of 78 million boomers will have reached full retirement age just as today's historically low number of newborns is entering the workforce. Without big changes Social Security, which is a pay-as-you-go system, will be overwhelmed.... Second, for many years it was widely assumed that falling birth rates among American women would be largely offset by births to the immigrant populations," the article argued, citing a U.S. Department of Agriculture report.

The author suggests that we solve this either by raising the eligibility age for Medicare and Social Security, or by letting in more immigrants, who tend to be younger and still tend to have more children than their native-born counterparts.

Critics of the latter theory, including groups like NumbersUSA, say that letting in more low-skilled labor only places further financial burdens on taxpayers and will not grow the population in a productive way. NumbersUSA cites New York Times' columnist Paul Krugman to offer statistical teeth to their argument.

Krugman contends that "low-skill immigrants don't pay enough taxes to cover the cost of the benefits they receive" and that "immigration reduces the wages of domestic workers who compete with immigrants," drawing on the research from economists like Harvard's George Borjas and University of California's Gordon Hansen. Still, both Hansen and Borjas argue that while low-skilled immigration may produce modest fiscal burdens in the short term, it also "greases the wheels of the U.S. labor market" in the long term.

Hansen explains this argument in his recent article in the Cato Journal:

"One contribution of low-skilled immigrants is to make it possible for high-skilled workers to spend more time on the job and less time doing non-work related chores," Hansen writes. As an example, he cites a study by MIT's Patricia Cortes that found that more upper- and middle-class women are able to work outside of the home because of affordable child-care, cleaning and laundry services provided by low-skilled immigrants.

Advocates of higher immigration levels cite similar economic arguments, and contend that opening the door to both skilled and unskilled immigrants actually fuels economic growth and population growth.

The George W. Bush Institute argues that even immigrants who take work as farm hands contribute to U.S. economic growth: "Each on-farm job -- filled almost exclusively by low-skilled immigrant workers -- is associated with the creation of three additional 'upstream and downstream jobs.' Calls to limit immigration are thus misguided because such policies would slow growth and destroy jobs," one of their recent blog posts argues.

Still, even if the U.S. opened the immigration floodgates and brought in more young workers, we might be facing greater problems if we don't start investing in the next generation, which will be mostly made up of blacks, Latinos and Asians by 2023.

Demographer William Frey of the Brookings Institution predicts that the portion of working-age Americans -"those who provide the tax base for young people and seniors alike" -- will shrink from 63 percent of the society now to 57 percent by 2030. What's more, Frey predicts that the population shift will also bring with it huge ethnic and generational divides, between the "gray and the brown," as Ronald Brownstein terms it in his 2010 cover story for The National Journal.

Despite the recent decline in Latina pregnancy rates and slowing immigration from Latin America, Frey predicted that by 2023 the majority of all American children will be minorities (that gives us a decade to think up a new name). And at the same time, the massive, mostly white Baby Boom generation will move into retirement, Frey predicts.

Brownstein argues that this divide will have a number of political implications. Among the most important, he warns, is that today's minority kindergarteners will represent "an increasing share of tomorrow's workforce and thus pay more of the payroll taxes that will be required to fund Social Security and Medicare benefits for the mostly white Baby Boomers."

Brownstein and Stephen Klineberg, a sociologist at Rice University in Houston, contend that the future success of America will be dictated by this question, posed by Klineberg:

"Will the Baby Boomers recognize that they have a responsibility and a personal stake in ensuring that this next generation of largely Latino and African-American kids are prepared to succeed?"

The Baby Boomer generation would do well to invest in the educational performance of blacks and Latinos who lag in educational attainment, Brownstein argues, because if these minority groups continue to fall behind, the country as a whole will have a hard time maintaining a healthy retirement safety net for the elderly.

"This ethnic transformation could be the greatest asset this county will have, with a young multilingual, well-educated workforce," Klineberg writes. "Or it could tear us apart and become a major liability."