The Demographics of Social Security:

• Post by: James C. Capretta
• January 23, 2011

Why Entitlement Reform Needs a Fertility Boost The deep and punishing recession that began with the financial crisis of 2008 will almost certainly become, in tomorrow’s history books, a demarcation line separating what was and what is yet to come. Since the end of World War Two, the United States and other Western democracies have used their growing wealth and prosperity to build generous social welfare states. These programmatic structures have varied in size and scope, depending on the cirucumstances unique to each country. Still, without exception, the leaders of the rich, industrialized West have sought to improve the economic security of workers in the postwar years by extending to them better health and retirement income protection, sometimes through direct governmental programs and sometimes through quasi-governmental programs administered by employers. Although it has been clear for some time now—at least three decades—that these arrangements need to be revised substantially to survive in the twenty-first century, the global financial crash made it abundantly clear that using debt to paper over fundamental imbalances in government finances was not a sensible solution. The social welfare programs that were erected in the postwar era were premised on assumptions of robust fertility rates, perpetually growing workforces, and never-ending economic growth. But without exception, the population of the industrialized world is rapidly aging, birthrates are anemic, workforces are stagnant or declining, and global economic competition has suppressed the wage growth of the West’s middle class. The United States isn’t exempt from these problems. The Baby-Boom generation is on the verge of retirement, which will swell the ranks of enrollees in entitlement programs. The U.S. workforce is still growing, but not nearly as rapidly as the population age 65 and older. And the middle class has gone through a long period of stagnant wage growth. The effe