Publications Archive • The Aspen Institute Economic Strategy Group

Demographic Headwinds: The Economic Consequences of Lower Birth Rates and Longer Lives

The United States is experiencing a significant demographic shift as fertility decreases and the nation’s aging population grows. The AESG’s latest series, Demographic Headwinds: The Economic Consequences of Lower Birth Rates and Longer Lives, considers the long-term economic impact posed by the country’s falling birth rate and aging population, including the effects on the US labor market, US fiscal sustainability, state and local public finances, and environmental sustainability.

Introduction
By Melissa S. Kearney and Luke Pardue

The Age Divide in the American Workplace
By Nicola Bianchi and Matteo Paradisi

Low Fertility and Fiscal Sustainability: The Effects of Past and Future Fertility Rates on the US Federal Budget Outlook
By Lisa Dettling and Luke Pardue

Implications of Low Fertility and Declining Populations for the Operations of US State and Local Governments
By Jeffrey Clemens

The Environmental Benefits of Low Fertility and Population Decline are Overstated
By Kevin Kuruc

Introduction: Demographic Headwinds: The Economic Consequences of Lower Birth Rates and Longer Lives

Download Paper

The United States is in the midst of a consequential demographic transition, marked by the dual trends of a sustained decline in the country’s birth rate and a rise in life expectancy. Following the mid-twentieth-century Baby Boom and its subsequent reversal, the US general fertility rate held roughly steady for several decades at around 65 to 71 births per 1,000 women of childbearing age. But that stability abruptly came to an end around 2007, and births have been on a downward trend since, falling to a historic low of 54.6 in 2023. The associated US total fertility rate, which approximates the average number of children a woman will have over her lifetime given the current age profile of childbearing, declined from 2.12 in 2007 to 1.63 in 2024, well below 2.1—the level at which a population replaces itself across generations. At the same time, average lifespan in the US has consistently risen. A person born in the US in 1960 was expected to live to 70 years old, on average. By 2023, the average life expectancy had risen to 78.4 years. Amid low birth rates and rising life expectancies, the share of the US population 65 or older has grown substantially, especially in recent decades.

An immediate demographic consequence of an inverted population pyramid—that is, one where there are fewer young people and more old people—means that the share of the population of traditional working age (20 to 64 years old) is declining. This decline puts more pressure on a smaller share of the population to contribute to economic activity and to care for an aging population. These developments raise important questions about the prospects of US labor market and business dynamism; about national, state, and local public finances; and about the environmental impact of population decline. In what ways does this demographic transition represent a challenge to maintaining current living standards—and in what ways does it not? This volume considers four aspects of these questions.

The Age Divide in the American Workplace

Download Paper

Demographic shifts are reshaping the U.S. labor market, as the share of the population within the working age has begun to decline. In The Age Divide in the American Workplace, Nicola Bianchi and Matteo Paradisi address the implications of this decline with a focus on within-firm dynamics.

Over the past five decades, longer life expectancy and improved health have enabled workers to remain employed later into life, altering the age composition of the workforce: the share of full‑time private‑sector jobs held by workers aged 20–24 fell by 7 percentage points between 1976 and 2024, the largest decline among all age groups. Over the same period, the share held by workers over 60 rose by 3 percentage points, the largest gain among all age groups.

At the same time, older workers postponing retirement are increasingly concentrated in high-paying leadership positions. In the mid-1970s, workers over 50 were about 5 percentage points more likely than workers under 30 to be employed in management occupations in the top quarter of the wage distribution. By 2024, this gap had widened to almost 8.3 percentage points.

The authors point out that the greater availability of older workers can be beneficial for firms, at least in the short term, as they can rely on a larger number of workers with greater firm-specific knowledge and experience. However, this same force also results in “congestion effects” within firms, which can slow the advancement of younger cohorts. Younger workers face fewer opportunities to move into high-paying and managerial jobs, limiting their ability to make key life investments, such as buying a home or starting a family, and to gain the leadership experience they will eventually need.

The authors argue that this divide is best understood as a shift in fortunes across generations, where gains from experience for older workers come at the cost of decreased opportunities for younger workers. As firms benefit from potential short-term productivity gains, they also neglect long-term investments in the next generation of the labor force. The central task for firms and policymakers is thus to ensure that the benefits of longer and more productive careers for older workers do not come at the expense of the dynamism and opportunities that younger workers need to thrive.

Implications of Low Fertility and Declining Populations for the Operations of US State and Local Governments

Download Paper

Roughly half of US counties lost population between 2010 and 2020, a trend driven overwhelmingly by declining fertility rather than changes in migration. Looking ahead, the Congressional Budget Office forecasts that the number of births will first exceed the number of deaths nationwide in 2033. Even under optimistic immigration assumptions, U.S. population growth will stagnate by mid-century.

This emerging trend poses significant challenges for state and local governments responsible for providing a range of services to citizens, including education, health care, and infrastructure. In Implications of Low Fertility and Declining Populations for the Operations of US State and Local Governments, Jeffrey Clemens outlines the scope of this challenge and the nature of public-sector management problems that come with retrenchment.

Using data on public school districts, Clemens provides preliminary evidence that scaling down capital-intensive services, particularly schooling, is considerably more difficult than scaling up services. Looking at school district enrollment and expenditure data, he estimates that the per-enrollee cost increases associated with a 10 percent enrollment decline were four times larger than the cost decreases associated with a 10 percent enrollment increase.

Scaling down can be more difficult than scaling up, he explains, because difficult and politically costly decisions surround closing underutilized facilities and because staffing costs are often slow to adjust to population contraction. On the other hand, the opportunity to close underperforming facilities can be cast as an opportunity amidst what most will recognize as a painful adjustment process.

Clemens further points out that regions with contracting populations will face additional challenges as a smaller working-age population bears the burden of funding pensions and retiree health plans for larger aging cohorts. Indeed, the costs of these underfunded benefits have the potential to give rise to adverse feedback loops: if a rise in the burden faced by remaining taxpayers results in additional taxpayer exit, a further increase in the burden per taxpayer ensues, which can induce yet more taxpayer exit.

Clemens ends by pointing out that lower fertility can create a short-run fiscal dividend as local governments serve fewer children. Policymakers should use that time to prioritize efficient retrenchment to accommodate the declining need for education and other public services.

Low Fertility and Fiscal Sustainability: The Effects of Past and Future Fertility Rates on the US Federal Budget Outlook

Download Paper

Low fertility and population aging have shaped the US federal government’s spending and revenue patterns, contributing significantly to the large and growing federal debt, which the CBO projects will grow from 98 percent of GDP in 2024 to over 150 percent by 2055. In Low Fertility and Fiscal Sustainability: The Effects of Past and Future Fertility Rates on the US Federal Budget Outlook, Lisa Dettling and Luke Pardue examine the role of these trends in shaping America’s current fiscal position and the potential for higher fertility to meaningfully relieve fiscal pressures in the coming decades.

The authors first show that the dramatic rise and fall in fertility during and after the Baby Boom has played a central role in today’s fiscal strain. As the large Baby Boom cohort aged into retirement, spending on old-age entitlement programs, primarily Social Security and Medicare, rose sharply. From the mid 1960s to 2025, old age entitlement outlays rose from roughly 2.5 percent of GDP to 9 percent. With proportionately smaller working-age cohorts supporting a growing elderly population, the imbalance between tax revenues and age-related spending placed sustained upward pressure on deficits and debt. Improvements in life expectancy have also been a primary driver of increased fiscal strain on the system from old-age entitlement spending and are expected to continue rising in the coming decades. Overall, the authors estimate that if old-age entitlement spending had remained at its 2000 level as a share of GDP, the primary deficit in 2023 would have been about 0.8 percent of GDP rather than 3.3 percent of GDP.

Dettling and Pardue then evaluate how changes in near-term fertility trends could potentially affect the federal budget in the coming decades. Under both a baseline scenario of continued low fertility and one in which the US returns to a replacement-level total fertility rate in 2026, they find that deficits and debt are projected to remain on an unsustainable path through 2055 for the simple reason that a child born today will not join the workforce and pay taxes for about 20 years. Additionally, increased outlays due to spending on children or the cost of pronatalist policies would act to worsen the fiscal outlook in the short run.

Only over the very long term would higher fertility modestly improve the budget picture, as larger cohorts eventually expand the tax base and stabilize old-age dependency ratios. However, given the current unsustainable trajectory of the US federal debt, the authors conclude that it appears that changes in tax or spending policy would need to occur before the fiscal benefits of higher fertility rates could be realized.

The Environmental Benefits of Low Fertility and Population Decline are Overstated

Download Paper

The discussion of impending population decline is often dismissed or minimized by arguments that downplay its urgency – or even welcome this development – because of the proposed environmental benefits. In The Environmental Benefits of Low Fertility and Population Decline are Overstated, Kevin Kuruc addresses this common misconception. He argues that welcoming depopulation on environmental grounds is unscientific and potentially counterproductive to effectively addressing climate goals.

Kuruc first points to the core issue of timing mismatch, outlining that demographic change unfolds over many generations, while effective responses to emissions and environmental harm require immediate action. Simply put, it is too late for changes in fertility to make a large difference in population sizes this century, and by the end of this century, it will be too late for population changes to make a large difference to eventual warming.

Kuruc further emphasizes that climate mitigation strategies, such as carbon capture, large-scale renewable deployment, and climate-resilient infrastructure, require high fixed capital and labor costs. In a smaller economy, these costs consume a larger share of national income, making ambitious climate action more difficult rather than easier.

Beyond climate impacts, Kuruc examines the claim that population decline will relax natural-resource constraints and improve living standards by increasing resource availability per person. He finds little support for this view. In modern advanced economies, natural-resource constraints on well-being are relatively weak and increasingly mitigated by technological progress and efficiency gains. As a result, marginal increases in resource availability from depopulation are unlikely to yield meaningful improvements in living standards or environmental quality.

In contrast, Kuruc argues that environmental progress depends critically on human ingenuity, technological innovation, and tax capacity. Technological advances that reduce emissions intensity, improve resource efficiency, and enable adaptation are more likely in larger, more dynamic societies with deeper labor markets and broader tax bases. Population decline reduces both the number of potential innovators and the fiscal resources available to finance these high fixed-cost investments.

Finally, Kuruc points out that sustainability is ultimately a result of policy choices. As younger populations tend to place greater weight on environmental protection and have more to lose from climate degradation, shrinking and aging societies may lack the funds and political resolve to enact and sustain the policies necessary to meaningfully address climate change.

Effective responses to climate change and resource sustainability require timely policy action, technological innovation, and robust fiscal capacity, all of which are more difficult in shrinking societies.

Aspen Economic Strategy Group Welcomes Four New Members

Aspen Economic Strategy Group Welcomes New Members
Leading business executives and academics join bipartisan group dedicated to promoting evidence-based solutions to America’s economic challenges.

WASHINGTON, DC, FEBRUARY 10, 2026 – The Aspen Economic Strategy Group (AESG), co-chaired by former U.S. Secretaries of the Treasury Henry M. Paulson, Jr. and Timothy F. Geithner, today announced four new members. Joining the group of top business executives, distinguished academic economists, and leading policymakers are:

Patrick Collison, Co-Founder and Chief Executive Officer, Stripe
Gita Gopinath, Gregory and Ania Coffey Professor of Economics, Harvard University
Peter Orszag, Chief Executive Officer and Chairman, Lazard
Evan Spiegel, Co-Founder and Chief Executive Officer, Snap Inc.

The AESG is a bipartisan group committed to promoting evidence-based solutions to significant challenges confronting the American economy.

“As the United States faces fast-moving technological disruptions, rising global competition, and domestic cost pressures, the need for a thoughtful approach to how our nation should meet this moment has never been greater.” said AESG Director Melissa S. Kearney. “This group of new members will bring valuable perspectives to the AESG’s work to advance bipartisan dialogue about effective solutions to our nation’s most pressing economic challenges.”

The full list of 2026 AESG members can be viewed here.

New Member Biographies:

Patrick Collison, Co-Founder and Chief Executive Officer, Stripe
Patrick Collison is cofounder and chief executive officer of Stripe, a technology company that builds programmable financial services. Patrick and his brother John started Stripe in 2010 with the goal to make accepting payments on the internet simpler. Today millions of businesses—from hypergrowth startups to global enterprises like Ford and Amazon—use Stripe to accept payments, send payouts, and manage complex global businesses online. Patrick is also a cofounder of the Arc Institute, a biomedical research institute that is pioneering a new model for basic research in partnership with Stanford, UCSF and UC Berkeley.

Gita Gopinath, Gregory and Ania Coffey Professor of Economics, Harvard University
Gita Gopinath is the Gregory and Ania Coffey Professor of Economics at Harvard University. Her research focuses on International Finance and Macroeconomics where she is a leading voice on dollar dominance, exchange rates, trade and investment, international financial crises, monetary policy and debt. Previously, she was the First Deputy Managing Director (FDMD) of the International Monetary Fund (IMF) from January 2022–August 2025 and prior to that she was the Chief Economist of the IMF from January 2019-January 2022. In her role as FDMD, the #2 official of the IMF, she oversaw the work of senior staff, represented the Fund at multilateral fora such as G7 and G20, maintained high-level contacts with member governments and Board members, the media, and other institutions, led the Fund’s work on surveillance and oversaw large IMF programs, such as those for Argentina and Ukraine.

Peter Orszag, CEO and Chairman, Lazard
Peter R. Orszag is the CEO and Chairman of Lazard, the global financial advisory and asset management firm renowned for independent, differentiated advice and solutions grounded in contextual alpha—the broad insight and judgment needed to navigate macroeconomic, geopolitical, and other factors, helping leaders see beyond what the world sees today. Peter joined Lazard in 2016 and previously served as CEO of its Financial Advisory business. He has had a distinguished career spanning finance, public policy, and academia. Prior to joining Lazard, Peter was Director of the Office of Management and Budget (OMB) in the Obama Administration and Director of the Congressional Budget Office (CBO). He also served in the Clinton Administration at the Council of Economic Advisers and as Special Assistant to the President for Economic Policy. Peter is a member of the National Academy of Medicine and the Council on Foreign Relations, and he serves on the board of the Peterson Institute for International Economics and as a trustee of Mount Sinai Hospital. He graduated summa cum laude from Princeton University and earned his Ph.D. from the London School of Economics as a Marshall Scholar.

Evan Spiegel, Co-Founder and Chief Executive Officer, Snap Inc.
Evan Spiegel is the co-founder and Chief Executive Officer of Snap Inc. Snap is a technology company that empowers people to express themselves, live in the moment, learn about the world and have fun together. Evan and Snap co-founder Bobby Murphy created Snapchat while at Stanford University. Today Snap is a publicly traded company with nearly 950 million monthly active users around the world. He and Bobby also co-founded the Snap Foundation, which supports underrepresented youth in Los Angeles. In 2017, Evan formed the Spiegel Family Fund, which is committed to philanthropy in California and across the United States. In addition, following the 2025 wildfires in Los Angeles, Evan co-founded a new nonprofit organization called the Department of Angels, which supports fire-impacted residents as they recover. He also established a 10-year longitudinal effort focused on environmental and public health, encompassing a consortium of academic and medical institutions around the country called the LA Fire HEALTH Study. Evan serves on the boards of KKR & Co. Inc., the Berggruen Institute, and Crossroads School for Arts & Sciences. He is also a member of the Business Roundtable and the Business Council. Evan graduated from Stanford University with a B.S. in Engineering, Product Design. He lives in Los Angeles with his wife Miranda and their four children.

Three Takeaways from the Census Bureau’s New Population Estimates

Last week, the US Census Bureau released new estimates of the US population over the past five years. Overall, the US population rose by 0.5 percent (by 1.8 million) from mid-2024 to mid-2025, a sharp slowdown from the prior 12 months, when the population grew at double that rate at 1.0 percent. Below, I highlight three key takeaways from this report, with an emphasis on the long-term causes and consequences of US population trends.

What to Know:

1. A drop in net immigration dragged down population growth, and will likely continue to decline
The drop from 2024 to 2025 was largely driven by a sharp decline in net international immigration. Net immigration into the US fell from 2.7 million to 1.3 million from mid-2024 to mid-2025 (accounting for 70.1 percent of total US population growth), and the Census Bureau forecasts it will continue to fall to 321,000 in 2026, should current trends continue.

Net international immigration has been an increased driver of population growth over the past several decades: from 2000 to 2009, it accounted for 35.7 percent of total population growth, and then from 2010 to 2019 it made up 40.1 percent. Post-pandemic, from 2021 to 2024, it averaged 81.6 percent, peaking at 88.2 percent in 2022. The drop to 70.9 percent in 2025 thus represents in part a return to historic trends, but a continued decline to 321,000 would return net immigration to levels last seen (outside of 2020) in 2009.

2. Lower birth rates are slowing natural population growth
The second factor driving population growth is “natural population growth” – that is, births minus deaths. Those trends are largely stable year to year (outside major events, such as the COVID-19 pandemic), but are affected by long-term changes in fertility and mortality. Importantly, natural population growth has significantly declined over the past several decades. Two decades ago, in 2006, the rate of natural population increase was 0.6 percent, and it has fallen by two-thirds to 0.2 percent in 2025. This drop is largely driven by a concomitant decline in the US birth rate: from 2006 to 2024 the General Fertility Rate in the US fell from 68.6 births per 1,000 women 15-44 to 54.6. Indeed, as this decline in childbearing is expected to continue, it will represent a further drag on US population trends. The Congressional Budget Office forecasts that by 2030, natural population growth in the US will turn negative (that is, deaths will begin to outnumber births).

3. More places across the US are losing population
Finally, the decline in population growth was quite geographically distributed. Five states saw an outright drop in population from 2024 to 2025, compared to two states in the prior year. Again, the geographic spread of population decline is part of a longer-term trend across the United States: researchers have calculated that, from 2010 to 2019 half of US counties lost population. Local population decline presents states and local governments with difficult challenges related to maintaining high-cost services such as education, health care, and transportation infrastructure amid a smaller population from which to raise revenue. As growth in the national population slows, more and more local communities will face the challenges that accompany population decline.

What this means
These estimates from the Census paint a vivid picture of the United States’ growing demographic challenges, should both current immigration and fertility trends persist. Amid declining international immigration and low birth rates, the country is growing less quickly – and will eventually begin to shrink – and the population will grow older. An older and smaller population will present strong headwinds to the country’s economic dynamism and to public finances – particularly the fiscal health of states and communities losing population.

Aspen Economic Strategy Group Reports related to Affordability

Policymakers across the political spectrum – and at the federal, state, and local levels – are increasingly focused on improving “affordability” for Americans.

The Aspen Economic Strategy Group has released a series of reports that speak directly to this challenge. Below, we highlight five AESG reports that offer evidence-based insights into how policy can strengthen household economic security by tackling high and rising prices, particularly in housing, energy, and healthcare.

1. Making Rental Housing More Affordable and Homeownership More Attainable

THE ISSUE:
In recent years, the cost burden of housing on American households has reached historically unprecedented levels. Among renters, 50 percent of households spent at least 30 percent of their income on rent, up from 41 percent in 2001. High house prices and elevated interest rates have also pushed homeownership later and later in life: the median age of first-time first-time homebuyers has increased from 29 in 1980 to 38 in 2024.

RECENT POLICY ACTION:
In recent weeks, the White House has proposed policy solutions aimed at making homeownership more attainable, including banning institutional investors from buying single-family homes as well as allowing individuals to tap into retirement savings in their 401(k) for the down payment on their home. At the local level, New York City Mayor Zohran Mamdani proposed improving the affordability of rental housing in the city by immediately freezing rent on all rent-stabilized apartments.

AESG WORK ON HOUSING AFFORDABILITY:
In an AESG paper “Improving Housing Affordability,” Ben Keys and Vincent Reina propose a policy agenda to make homeownership more attainable and reduce rental costs. Their expert view is that the housing affordability problem is fundamentally driven by a lack of adequate and affordable housing supply. They note: “given current supply constraints, policies that support and solely stimulate demand can exacerbate housing affordability issues.”

They propose that policymakers should make it easier to build new housing supply through comprehensive zoning reform and expanding financing opportunities for builders. Local zoning regulations, including minimum lot sizes and minimum parking requirements, have inhibited development and should be reviewed and reformed. They further propose that federal housing agencies make it easier to finance new construction, in particular expand multifamily financing through a loan system similar to what is currently in place for single-family lending.

Finally, Keys and Reina propose the establishment of a comprehensive housing safety net for renters who face a temporary drop in income – a topic previously taken up in detail by Ingrid Gould Ellen, Katherine M. O’Regan, and Amy Ganz in “A Renter Safety Net: A Call for Federal Emergency Rental Assistance.”

They propose the creation of a Federal Emergency Rental Assistance Program to provide one-time, short-term financial help to low-income renters who experience negative financial shocks. This program would offer temporary federal aid to cover rent, utilities, and other essential housing costs for renters earning below 80 percent of the area median income and see a temporary drop in income. Providing such temporary assistance when a financial shock occurs, they argue, significantly lowers the risk of subsequent evictions and delivers large social benefits at a relatively modest cost.

2. Reigning in Energy Costs

THE ISSUE:
The US is set for an acceleration in power demand, after years of flat consumption, driven primarily by growth in data centers including power-intensive AI hyperscalers. Such a development, without an accompanying increase in power supply, will likely result in reduced reliability and higher electricity prices – an outcome PJM, the country’s largest power grid operator, is already facing.

RECENT POLICY ACTION:
The White House Energy Dominance Council and a bipartisan group of 13 governors released a statement of principles on January 16 aimed at addressing the looming rise in electricity prices. The principles encourage PJM to hold a 15-year electricity auction for large technology companies, creating revenue certainty that will speed the build out of new power sources. The statement also prods PJM to speed up the regulatory approval process through which these new power sources can connect to the grid.

AESG WORK ON ENERGY STRATEGY:
In “An Energy Strategy for National Renewal,” Joseph Majkut offers policy proposals to meet America’s growing energy needs. First, expanding nuclear power is essential to providing large amounts of baseload power. The Department of Energy could facilitate the large capital investments necessary to build new nuclear capacity by purchasing power from such projects in advance. Second, the federal government should also invest in expanding high-voltage interstate transmission lines that transfer power across states and regions – both through greater funding and enhanced federal authority to site such projects. Such an investment in our energy infrastructure, particularly in areas that host data centers, will stabilize the power grid and reduce electricity costs.

3. Reducing Healthcare Prices

THE ISSUE:
Over the past several decades, healthcare costs have risen faster than the overall cost of living. KFF estimates that the average inflation-adjusted premium for a family health insurance plan has more than quadrupled from 1999 to 2022, and real out-of-pocket spending has risen by 30 percent.

RECENT POLICY ACTION:
On January 16, the White House announced The Great Healthcare Plan. Included in this plan are proposals to establish “Most-Favored-Nation” deals, under which prescription drug prices in America would match the lowest international price; to end the rebates Pharmacy Benefit Managers (PBMs) receive; and to require greater public price transparency by health care providers and insurance companies. In addition, the 2026 appropriations package that passed the House of Representatives on January 26 includes several provisions increasing transparency in PBM operations, including one mandating PMBs split drug rebates with health insurers.

AESG WORK ON HEALTH CARE COSTS:
In “Why Drug Pricing Reform Is Complicated: A Primer and Policy Guide to Pharmaceutical Prices in the US,” Craig Garthwaite and Amanda Starc lay out the complex and opaque system that determines pharmaceutical prices. They emphasize that a fundamental tradeoff lies at the core of drug pricing in the US: high prices today provide firms with the incentive to make the large, fixed, and sunk investments necessary to bring future new drugs to market.

However, they point out that specific market failures and other features of the pharmaceutical value chain raise prices without delivering additional value. The authors recommend a series of reforms that emphasize bolstering competition and transparency: by speeding up the approval process for new generic drugs, improving transparency between insurers and pharmacy benefit managers in the rebates PBMs receive from drug manufacturers, and limiting vertical integration between insurance plan sponsors, PBMs, and pharmacies.

More broadly, in “Coverage Isn’t Care: An Abundance Agenda for Medicaid”, Garthwaite and co-author Timothy Layton outline an “abundance agenda” for healthcare, using Medicaid as a first step. Garthwaite and Layton call for reforms to the US healthcare system that would increase the supply of low-cost providers that can provide basic care. They propose targeted regulatory reforms to relax restrictions on foreign-trained doctors, expand the ability of nurse practitioners and physician assistants to practice independently, and allow for AI-augmented care to efficiently scale medical expertise. These changes would first operate within a designated ‘Medicaid tier’ of care where regulatory reform would be used to deliver such high-quality, low-cost care to Medicaid enrollees.