Overall population trends can predict the future size of our workforce.
Around third grade, most of us learned a fraction has two parts—the numerator is the number on the top and the denominator is on the bottom.
A simple fraction can help you understand where the U.S. economy is headed in the future. The numerator is our workforce, which will tell us a lot about how much economic activity we will have and how many tax dollars will be available to fund essential services ranging from police to Social Security. And the denominator is our overall population, which can predict how many workers we will have.
Our economy won’t keep growing for long unless both this numerator and denominator are growing.
But America is in deep trouble on both fronts. Our labor force participation is still well below what it was before the pandemic. And the Census Bureau reported that the U.S. population grew at a slower rate in 2021 than any time since America’s founding over two hundred years ago.
Nationally, our stagnant population is driven by historically low birth rates and declining rates of immigration. Locally, many states and cities are hemorrhaging residents amid cost, quality of living, taxation and public safety concerns. The solutions to these problems are different but government leaders at every level need to understand the threat: If our population denominator shrinks, it will sink the quality of life for every American. Economic growth in many developed countries is already projected to slow in the next 20 years due to declining population. And graying populations are creating unsustainable government debt burdens, as evidenced by Japan, which has both the oldest population in the world, as well as the biggest share of debt-to-GDP of any country. Faced with labor shortages, companies are trying to gain productivity margins by turning to automation.
The other way to gain productivity is to expand America’s overall population, which can only be done one of two ways. One, is for the people already here to have more children. I’ve done my part—I have four kids and four grandkids so far. But the U.S. birth rate has been declining for years and recently hit its lowest annual level in a century. We have effectively reached “ZPG” or zero population growth and our U.S.-born workforce is shrinking. Even if the U.S. birth rate did start ticking up, it would take 20 years of investment in a child born today before they start significantly impacting our economy.
That leaves option two: Allow more immigration, where the benefits to the economy are more immediate.
This is exactly what the American public wants—75% of Americans say immigration is a “good thing” for America. Of course, even as Americans have very favorable views of immigrants, their concern over unauthorized immigration is at a two-decade high, which is no surprise given that undocumented border crossings are at record levels too.
The solution here is so obvious and urgent. Washington needs to deliver immigration reform that secures the border to stop unauthorized immigration while passing policies that encourage legal immigration. As more jobs go unfilled, the incentive for legal immigration grows to fill open jobs.
If Washington doesn’t act, Americans will continue to get the exact opposite of what they want: low levels of legal immigration and high levels of unauthorized immigration.
But if Washington can instead manage to secure the border and increase legal immigration, every bit of historical data we have tells us we can expect our economy to grow faster, our government fiscal deficits to get smaller and the creation of new businesses—which are responsible for nearly all net new job growth in America—to increase. That’s because immigrants are a uniquely motivated and entrepreneurial group of people; they’re twice as likely to start a new business as a native-born American. Half of all Fortune 500 companies were started by an immigrant or their children.
Of course, Washington isn’t the only place that needs to act fast to arrest a shrinking population denominator. Many cities and states have seen residents flee since the onset of the pandemic. New York, the state where I reside, has lost over 300,000 residents, and has seen the biggest exodus as a share of its population. Many of those who’ve left are the high-income residents cities and states desperately need to keep. More may follow, especially as other states offer attractive incentives like low taxes, better climate and safer streets to attract wealthy residents.
Consider that the top one percent of New Yorkers pay almost a third of the state’s income tax—and over 40% of New York City’s income tax—which funds schools, transportation, aid to families in need, law enforcement and everything else.
I’m a lifelong New Yorker and have no plans to leave. I want to help this city bounce back.
But others will make a different choice unless city and state officials start confronting some of the main reasons why people are fleeing in the first place.
If you look at the four states nationwide that have lost the most population—New York, Illinois, Hawaii and California—you will notice all have a few things in common.
They are all among the most heavily taxed and highly regulated states in the country, whose major cities are experiencing an increase in crime.
These states have so much to offer their residents—so much to do and so many places to go. But I grew up in the hotel industry and quickly learned that amenities aren’t everything. A hotel can have the nicest rooms and great food but if its staff is rude, if it’s a hassle to check in and out, if its prices are unfair, and if it isn’t making your guests feel safe and secure, you can bet it will have empty rooms.
Unless state and local leaders can get a better handle on people’s very real cost and quality of living concerns, their population denominator is likely to keep shrinking to the detriment of every state or city resident who stays behind.
For far too long, our leaders at all levels have refused to take the steps required to grow the population denominator. They have instead, for much of the past two years, imagined America can spend its way out of every problem. As a consequence, prices are at a four-decade high and both consumers and businesses may be tapping into the dangerous hoarding or “spendflation” psychology, in which consumers speed up purchases because they think prices will rise in the future and businesses raise prices because they believe costs will go up in the future, making current consumption more attractive and straining resources.
Even now, leaders in Washington are pushing ambitious new spending plans as the cure-all for what ails our country, while too many mayors and governors refuse to address the root causes for why people are fleeing their cities and states.
It’s time for our leaders to go back to school, and embrace the basic math that should point policymakers to one solution—develop and pass policies that grow the population denominator.
