Reviving Wages for Young Workers and Boosting America’s Birth Rate
Back in 1978, Richard Easterlin made a prediction at the Population Association of America, claiming that wages for young American men, which had been on the decline since 1973, would bounce back by 1984.
He was credible, having already discussed his relative cohort size hypothesis, which was seen as one of the most effective applied demographic theories of its time. This framework helped clarify a significant moment in American history: the baby boom. Easterlin replaced superficial ideas about returning GIs and suburban dreams with solid social science.
The romanticized view of the baby boom didn’t hold up under scrutiny, especially since similar events didn’t unfold after other conflicts. The First World War didn’t lead to a comparable baby boom, nor did the Civil War. In fact, sociological research and popular representations from the 1950s offered a more subdued picture of newly demobilized Americans, who were not riding high on optimism but rather held a sense of suffocation and ennui in the suburbs. Surprisingly, many contemporary demographers did not foresee the postwar baby boom either.
Easterlin found the reasons behind the surprise boom rooted in economics. The Great Depression had led to smaller birth cohorts. These cohorts came of age during a flourishing postwar economy, compounded by the immigration restrictions imposed by the 1924 Immigration Act, creating labor markets that lacked enough workers. With unexpected higher wages, these young individuals tended to marry early and have larger families.
The phenomenon of tight labor markets coupled with restricted immigration catalyzed the baby boom, which lies at the heart of Easterlin’s argument.
The rest of his model outlined a cyclical trend. As larger groups entered the job market, wages would drop, family formation would be delayed, and birth rates would decline, leading to smaller groups entering the workforce again. When the baby boomers joined the labor force in the 1970s, youth wages increased in 1973. However, with the smaller cohort following the boom, he anticipated that by 1984, these trends would reverse, yielding higher wages and improved future prospects for young individuals.
In essence, Generation X was expected to be the parents of the subsequent baby boom, along with Millennials, who were also born into smaller cohorts. Logically, this should have created a desperate labor market, making housing more affordable.
However, the reality diverged sharply from this prediction. Wages did not rebound in 1984, continuing their decline, with brief stabilization in the late 1990s but falling again post-2000. By 2015, real wages for men aged 25 to 29 had plummeted to 25% below their 1973 levels. The implications followed—a significant drop in marriage rates and declining birth rates without any sign of a resurgence in American births.
What went awry? Easterlin failed to account for the influx of immigrants.
The Role of Immigrants and Working Women
Enter Stephen Ruggles, a prominent demographer and MacArthur Fellow at the University of Minnesota, who designed IPUMS, a crucial census microdata system for economists. He published a paper in May, titled “Pigs in the Python: U.S. Decadal Labor Flows and Economic Opportunities, 1910-2040,” which updates Easterlin’s work and sheds light on why the population cycle encountered disruptions.
Ruggles analyzed the net entries into the labor market relative to the working-age population over the past five decades. The trend correlates closely with young workers’ wages. While Easterlin indicated that competition would ease post-1980, Ruggles contends that competition actually grew until 1980, peaking around 1990 and remaining elevated until 2015, when wages hit a new low.
So if the demographic behind the baby boom was small, where did the competition originate?
Indeed, many newcomers were from across the border. The net influx of foreign-born workers aged 16 to 29 surged between 1980 and 2020, coinciding with a slowdown in the entry of young U.S.-born workers. Ruggles concluded that the inclusion of immigrant workers “tends to smooth trends in labor force entry, counteracting the decline in new workers since the 1970s and mitigating the impacts of the Easterlin effect.” Another factor was the increasing presence of women in the workforce, further dampening the Easterlin cycle.
During these decades, there was also the collapse of unions and offshoring. Ruggles argues that these developments might not have held significant consequences if demand for workers had surged as Easterlin predicted. In a truly tight labor market, workers can assert their rights and push for better conditions.
According to Ruggles, “Economic opportunities right before the labor boom of the 1970s were significantly better than those immediately following. Baby boomers, newly hired women, and immigrants didn’t vanish after obtaining jobs; they continued working until they retired, which might take decades.” The influx into the workforce has suppressed the demand for new hires, creating a backlog that will persist until these individuals retire.
Even more plainly, the 1924 Act contributed to the circumstances leading to the baby boom. The 1965 Act came into effect around 1980, yet the anticipated recovery didn’t materialize.
Patterns Resurfacing
Yet, there’s a glimmer of hope. As baby boomers retire and immigration decreases, the expansion of the workforce by women is also leveling off. The metaphorical “pig” looks to have almost surpassed the python. Ruggles forecasts that net entries into the U.S. labor force will turn negative in the 2030s. Birth rates saw a 17% drop from 2007 to 2024, with projections indicating the competitive index will decline substantially from around 45 to 23 by 2040—the sharpest fall since 1920.
This shift suggests potential worker shortages, which would drive wages upwards and encourage automation. A recent study by notable economists, including 2024 Nobel laureate Daron Acemoglu, observed that lower birth rates could enhance output per worker and increase wages as a smaller workforce necessitates labor-saving innovations. Additionally, this isn’t merely about amplifying per capita output or wages for young workers; overall GDP might not decrease either, thanks to productivity enhancements.
Those arguing that growth mandates immigration may be misjudging the workforce dynamics. Acemoglu and his colleagues indicate that a slowdown in labor force growth doesn’t automatically translate into diminishing total GDP. In fact, productivity gains can counterbalance employee losses. Historical trends show that economic affluence has encouraged American births, even amid strict immigration limits. The research titled “Baby Busts and Growth Booms: Demographic Change and Macroeconomics” underlines that it’s feasible to advance the economy without mass immigration.
Ruggles notes that “Americans born in the 2020s could be the first in fifty years to make significantly more than their parents.”
However, this isn’t guaranteed. There’s a chance it could be compromised by public policy. “A high demand for labor will naturally foster a push toward increased immigration,” Ruggles warns. If this pressure holds, it may restrict what today’s young workers can achieve.
When politicians and business leaders discuss a “labor shortage” and consider immigration as a solution, we must realize what they’re truly advocating—essentially handing down 40 years of wage stagnation to the next generation of Americans. This could perpetuate the trend of declining birth rates as well. Calls for open borders or no illegal residents living on “stolen land” could inadvertently lead to lower wages, ongoing economic oppression across generations, and further decreases in the birth rate.
Members of Generation X were once termed “Key Kids” for often returning home to find no one waiting for them. Ironically, the decisions made by their parents and grandparents shut them out of the American Dream. Now, it seems the door is slowly opening again, providing opportunities for a new generation of Americans. Ensuring this door remains open requires confronting the modern forces that previously shut it tight.
