At its most basic level, demographic study relies on a simple fact: Most of us age about one year every 12 months. “Aging is a regular and predictable process,” says Tom Gillaspy, State Demographer with the Minnesota Department of Administration and co-author of a recently released report entitled, The Long Run Has Become the Short Run: Budget Implications of Demographic Change.
While the report specifically focuses on Minnesota, Gillaspy points out that the state is not exceptional in the trends described in the study. In age structure, he says, Minnesota represents the national average. “We have known for decades that this time would come and very little has been done to prepare for it.”
Like Europe, our nation has made promises based on the expectation of faster economic growth – which can be expressed as labor force growth plus per worker productivity growth – and now we are coming to the realization that we might have a problem. As of January 2011, when the first Baby Boomers turned 65, this became a short-run issue. “Fasten your seat belts and enjoy the ride!”
MuniNet: The report says, “The 2010s will see Minnesota transform from a young state to an old state, from a work-based economy to a retirement-based, entitlement economy.” Can you outline some of the specific changes that might result as a result of this shift?
Gillaspy: Minnesota is not an old state by comparison with others; in fact, its age structure is the same as other states across the country, all of whom are going through the same transition. What is the implication of changing the most basic characteristics of our nation? Characteristics that have defined our population in the past, like “young,” “risk-taking,” “mobile, going to where the opportunities are,” have changed, thereby creating a national debate over how to handle this shift. We are no longer young, risk-taking and mobile.
This decade will see some of the most profound changes to our society since we became a nation. I don’t think we know all the dimensions of these changes. Over the course of this decade, we can expect to see slower economic growth, an increasing emphasis on increasing per-worker productivity as the main source of economic growth (as opposed to increasing number of workers, the other source of economic growth), chronic government deficits, cuts and increasing worries about how to pay for past promises.
Over the next decade, we will begin to worry about health care costs and long-term care issues. If you think that is an issue now, just wait. The folks turning 65 this year begin to turn 85 in 2031.
A growing issue will be the “grasshopper and the ant” dilemma. In the old children’s tale, the grasshopper fiddled all summer while the ant worked hard. The grasshopper tried to get the ant to play, but the ant responded that winter is coming and he must get ready. Winter comes and the ant is snug in his home when he hears a knock on the door. The grasshopper says, “Ant, it is cold out here and I am hungry. Please let me in.” For a very large segment of our population, winter is here and they didn’t prepare. Now what do we do? This dilemma has now become one of the central issues in national policy debate.
MuniNet: You mention the declining ratio of workers to retirees over the next decade. Is that a national trend? Are any states immune?
Gillaspy: This is, indeed, a national trend – and in some ways, it is even an international trend. I don’t know that any state will be unaffected by the shift in demographics. The nation is aging, and this declining ratio of workers to retirees is one implication of this process.
“This decade will see some of the most profound changes to our society since we became a nation. “
MuniNet: In addition to an aging population, is Minnesota’s population feeling the effects of out-migration as well?
Gillaspy: In a “normal’ year, Minnesota has a modest domestic net out-migration but this is fully met with an international in-migration resulting in a modest net in-flow to the state. It is important to note that international migration includes immigration as well as in-migration of U.S. national returning to the States. Some corporations, for example, have overseas operations where they temporarily send employees. When they return, they are counted as international in-migrants but not immigrants.
MuniNet: Why is Minnesota’s labor force growth rate experiencing such decline?
Gillaspy: Actually, the labor force is not projected to “decline” but rather to grow more slowly. Minnesota will match the national labor force growth this decade. The same trend is expected to take shape across the nation. Starting to some extent this year, and building rapidly in 2012 and 2013, retirements will increase and continue a strong annual increase for the next decade and a half.
At the same time, the number of young folks age 18-24 is declining in Minnesota and nationally. With fewer young people entering the workforce and more older employees leaving, growth will slow. These forecasts assume that immigration will continue at approximately the same level as during the last 10 years and older workers will continue to work longer (i.e., retirement age will increase).
MuniNet: Might demand for certain jobs and industries increase because of the aging population?
Gillaspy: Almost certainly. Health care will, of course, be a growth industry. Products and services that increase productivity (allow us to work and play more efficiently and effectively) will also likely increase. To the extent that retirees can pay, travel may increase. Predicting specific winners and losers can be dicey.
MuniNet: What sectors or services might be in jeopardy as a result in the shift in demographics? For example, might we see decreased support for schools via property taxes if it is a service that they or their families are no longer using?
Gillaspy: Increasing numbers of school districts are already having a difficult time getting school levy referendums passed as the connection between the older voters and the children in school diminishes. We see this beginning to happen in Minnesota, as it is in much of the country. This issue has actually been building for a number of years. Remember, in addition to America aging, we are also a highly mobile society, and increasingly diverse racially and ethnically.
What we have often seen, as a result of all these factors combined, especially in some older suburbs where the original children have grown up and moved away, leaving parents in their 60s and 70s, is a situation where the children are now increasingly racially/ethnically/culturally diverse. The children look and sound different from the older folks, whose grandchildren may attend school a thousand or more miles away. They would be more likely to support the school if THEIR grandchildren were there, but they are not and the children there are different.
In addition to education, we expect funding government services, in general, to experience regular cuts.
MuniNet: What strategies can state and local governments consider as a way to mitigate the need to cut services?
Gillaspy: An alternative to raising revenue, making budget cuts, or reducing services is increasing productivity – including doing things cheaper, but also doing things better. For most or all states, revenues cannot be raised enough, nor can budgets be cut enough to resolve the issue. We must do things better. Most cannot see this as a possibility now. The states that do will do better and move on, while others will have difficulties.
Increasing numbers of school districts are already having a difficult time getting school levy referendums passed as the connection between the older voters and the children in school diminishes.
Businesses will change and adapt to the changing situation. But here is another thing: In times of great social and economic stress, disruptive events and disruptive innovations become more frequent.
MuniNet: What are “disruptive events” and “disruptive innovations,” and what role might they play as we experience this shift in demographics?
Gillaspy: Disruptors are non-linear and non-evolutionary in nature. Therefore, they are hard to predict. As a group, however, we expect their frequency to increase during times of great social and economic stress, as we will experience this decade. Even though they are unpredictable, organizations can prepare for them – and successful organizations do. Disruptors will be among the most significant happenings this decade. Organizations that can adapt and even benefit from these disruptors will do well. Those that don’t, won’t, regardless of their current apparent strength and size.
In early January, you would have thought me a bit loopy if I had predicted that two dictators – each with four-plus decades of absolute rule – would be deposed within a couple weeks of each other and a third on the ropes. You would have thought me rather misinformed if I had predicted at the beginning of the year that public sector unions would be threatened with their very existence.
There will be other remarkable, unexpected, game-changing, 90-degree turns that we cannot foresee. An example might be if someone were to develop a cure for Alzheimer disease. If that happens, all our cost forecasts would be wrong. Wow, that would be a game changer. Things like this will happen. Some wonderful changes could be on the horizon, as could some that are less than wonderful. But they will all change the course of the future.
About the Expert
Tom Gillaspy has served as the Minnesota State Demographer, a position within the Minnesota Department of Administration, since 1979.
Prior to moving to Minnesota, Tom held the position of demographer at the Andrus Gerontology Center, University of Southern California. He received his Ph.D. in economics from the Pennsylvania State University, specializing in economic demography. He also holds a Master’s Degree in agricultural economics.