How to Reinvigorate the Wages of Young Workers and Revive American Birthrates
In 1978, Richard Easterlin stood before the Population Association of America and predicted that the wages of young American men — falling since 1973 — would turn around by 1984.
He had earned the confidence. As we have discussed in the past, Easterlin’s relative cohort size hypothesis was the most successful applied demography of its era, and it had already explained the biggest population event in American history—the Baby Boom. He replaced the mysticism about returning GIs, swooning Rosie Riveters, and suburban optimism with actual social science.
The gauzy version of the Baby Boom never made particular sense because our other wars didn’t have the same effect. World War I didn’t produce a comparable baby boom, and neither did the Civil War. And if you read the sociological literature of the time—or just watch the 1950s popular culture depictions of demobilized Americans—it just doesn’t hold up the idea of boundless optimism. At the time, people believed the post-war period was an era of stifling conformity, the man in the grey flannel suit, suburban ennui. Certainly, contemporary demographers weren’t predicting a post-war baby boom.
Easterlin found the explanation for the unexpected Baby Boom in economics. The Depression produced small birth cohorts. Those cohorts came of working age in a booming postwar economy and immigration tightly restricted by the Immigration Act of 1924. The “lucky few” folks walked into a market starved for workers. They got high wages relative to what they’d grown up expecting, and so they married early and had a lot of children.
Tight labor markets and closed borders made the Baby Boom. That is the core of Easterlin’s thesis, and it is the part of his work that has aged best.
Professor Richard Easterlin in his office at the University of Southern California in Los Angeles in 2006. (Ricardo DeAratanha/Los Angeles Times via Getty Images)
The rest of the model was a cycle. Big cohorts crowd the job market, wages fall, family formation gets postponed, births decline — which produces small cohorts, which restarts the loop. The boomers hit the labor force in the 1970s, young men’s wages cracked in 1973, and Easterlin ran the arithmetic forward. The cohorts behind the boom were small. By 1984, the flood would recede. That would set the stage for rising wages, better prospects for young men, and younger marriages. A new baby boom would emerge from the improved economic situation of the scarce young workers.
In other words, Generation X was supposed to be the parents of the next baby boom. The Millennials too. They were born into small cohorts. The arithmetic said the labor market would be desperate for them. Housing would be more affordable.
Unfortunately, things didn’t turn out that way. Wages didn’t recover in 1984. They kept falling, briefly stabilized in the late 1990s, then resumed the decline after 2000. They bottomed in 2015, when real wages for men aged 25 to 29 stood 25 percent below their 1973 level. We all know what happened next and is still happening: marriage rates collapsed, birth rates fell, and there was no echo boom in American fertility.
So what went wrong? Easterlin did not foresee the flood of immigration.
The Immigration Flood and Women Working
Steven Ruggles is a demographer at the University of Minnesota, a MacArthur fellow, and the architect of IPUMS, the census microdata infrastructure half the economics profession runs on. In May, he published a paper in the prestigious journal Proceedings of the National Academy of Sciences with the catchy title: “The pig in the python: US decennial labor flows and economic opportunity, 1910–2040.” It is an important update to the Easterlin thesis and an explanation of why the population cycle broke.
Ruggles tracks cumulative net entries into the labor market over the previous five decades as a share of the working-age population. It tracks young workers’ wages almost perfectly. Easterlin’s measure said competition should ease after 1980. Ruggles’s says it kept rising until peaking around 1990 and then remaining high until 2015, the exact year wages hit bottom.
So where did that competition come from, if the cohorts behind the Baby Boom were small?
You guessed it: a lot of it came over our borders. Net labor-force entry of foreign-born workers aged 16 to 29 peaked from 1980 to 2020. Not coincidentally, that is precisely, to the decade, the window in which the inflow of young U.S.-born workers dipped. Ruggles’s own conclusion: including immigrant workers “tends to flatten the trend in labor-force entries, attenuating the drop in new workers after the 1970s and moderating the Easterlin effect.” The other big factor was the inflow of women into the workforce. The combined effect was to suppress the Easterlin cycle.
Those decades also brought union collapse and offshoring. Ruggles argued that had demand for workers relative to supply exploded as Easterlin predicted, those events might not have mattered. Indeed, they may not have occurred at all. A labor market genuinely starved for workers gives workers the leverage to resist. Scarce labor can resist pressure against unionization and demand that politicians seek better terms of trade. Gen X Americans might have been in short supply, but the surge in immigration meant the labor force itself was never short of workers.
“Economic opportunities immediately before the 1970s spike in the labor force were vastly better than immediately afterward. This is because the baby boomers and newly employed women and immigrants did not suddenly vanish after they entered the labor force; they kept working and occupying jobs until they eventually retired decades later. Like the pig in the python, the bulge of workers suppressed the appetite for new employment. The glut of workers entering the labor force in the 1970s would continue to stifle demand for new workers until their eventual exit from the labor force, a process that is still in progress,” Ruggles writes.
Even more simply: the 1924 Act helped make the baby boom. The 1965 Act, whose effects arrived on schedule around 1980, unmade the recovery that was supposed to follow it.
It Is Happening Again
But there’s a silver lining. The boomers are aging out of the workforce and retiring, immigration levels are declining rapidly, and women are no longer expanding the workforce. The titular “pig” has nearly passed through the python. Ruggles projects net entry into the American labor force goes negative in the 2030s. Births fell 17 percent between 2007 and 2024. His competition index collapses from roughly 45 to 23 by 2040, the sharpest drop in a series that begins in 1920.
That means an unprecedented shortfall of workers, strong upward pressure on wages, and powerful incentives to automate. A recent paper by some of the most prestigious names in U.S. economics today—Daron Acemoglu, the 2024 Nobel laureate, and his MIT colleague and “China Shock” economists David Autor, with MIT doctoral economist Keelan Beirne and Andrew Scott of London Business School and the Ellison Institute of Technology—looked across 107 countries and 722 U.S. commuting zones and found that falling birth rates raise output per worker and raise wages, because scarce labor calls forth labor-saving technology. What’s more, this isn’t just an improvement in per capita output or better wages for younger workers. GDP itself doesn’t fall despite the relative workforce population decline because the productivity improvements are enough to offset it.
The folks saying we cannot grow without immigration have the labor-force arithmetic wrong. Acemoglu and his coauthors show that slower workforce growth need not reduce aggregate GDP. Induced productivity can offset the loss of workers. Under sharply restricted immigration, prosperity and population grew together because economic abundance generated American births. “Baby Busts and Growth Booms: Demographic Change and the Macroeconomy” indicates that we can grow the economy without mass migration.
“Americans born in the 2020s might be the first cohort in a half century that earns significantly more than their parents did,” Ruggles writes.
That’s not assured. It can be undermined by public policy, just as it was back in 1965. “High demand for labor will create pressure to expand immigration,” Ruggles writes. If that pressure wins out, the gains for today’s youth will be limited.
Whenever a politician or a business leader warns about a “labor shortage” and reaches for immigration to solve it, understand what is actually being proposed: the extension of the four-decade-long era of wage stagnation to the next generations of Americans. And that will also mean the extension of the baby dearth for as far as the eye can see. The libertarian call for open borders and the left-wing rallying cry that “no one is illegal on stolen land” are objectively calls for lower wages, generational economic repression, and a shrinking birthrate.
Members of Gen X were once called “latchkey kids” because they often came home to an empty house. Ironically, the political choices of their parents and grandparents locked them out of the American dream. Now the door is opening again for the rising generation of Americans. Keeping the door open will require fighting the 21st-century version of the forces that closed it last time.