Population growth does not lead to economic growth

February 10, 2011
By Ric Oberlink

Politicians sing the praises of growth so frequently that we, and they, lose track of the ambiguity of this siren song. Do they mean population growth or economic growth? In fact, they tend to intertwine the two and assert that the former stimulates the latter, which, inevitably, leads to poor policy decisions.

Local governments have assumed that growth benefits the tax coffers and provides economic gains, particularly employment, for local residents, and that these rewards are sufficient to outweigh the consequent increases in sprawl, traffic, and loss of open space. The evidence shows otherwise.

A recent study by the Eugene-based consulting firm of Fodor & Associates examined the 100 largest U.S. metro areas, representing two-thirds of the total U.S. population. It compared the average annual population growth rate of each metro area with unemployment rate, per capita income and poverty rate for the 2000-09 period.

For the “growth is good” sycophants, the results are as disconcerting as they are counter-intuitive. Those metro areas with the lowest population growth rates had the best economic performance.

Some of the more noteworthy findings include:

• Faster-growing areas did not have lower unemployment rates.
• Residents of faster-growing areas had greater income declines during the recession.
• More rapidly growing areas tended to have higher poverty rates.
• Faster-growing areas tended to have lower per capita income than slower-growing areas. Per capita income in 2009 tended to decline almost $2,500 for each 1 percent increase in growth rate.

In comparing the slowest-growing with the fastest-growing areas, the study found that the 25 slowest-growing metro areas outperformed the 25 fastest-growing in every category, averaged $8,455 more in per capita personal income in 2009, and had lower unemployment and poverty rates.

Alas, politicians at the state and national level share the same myopic mindset about population growth. They seem unable to understand that an increase in the human population brings not only tax revenues, but also concomitant tax expenditures and increased competition for jobs.

A failure to comprehend basic demographics pervades coverage of economic issues. When an economist notes that the U.S. economy grew at a 2 percent annual rate, she is ignoring that the population grew by 1 percent so the per capita economic growth, the more important measure, is only half what she has stated. International comparisons of economic growth often exaggerate American performance because other industrialized countries have relatively stable populations, unlike the rapidly growing U.S.

The Obama administration recently touted that the December figures showed “12 consecutive months of growth that added 1.3 million private sector jobs to the economy during 2010,” ignoring that during the same period, U.S. population had grown by 3 million, and, hence, unemployment had not decreased but remained steady at between 9 and 10 percent.

Some pundits even bemoaned the fact that the 2010 Census revealed that the U.S. has grown by only 27 million over the past 10 years. Only 27 million—a figure higher than the combined populations of Denmark, Israel, Costa Rica, Ireland, and Nicaragua!

A number of economists worry about the lack of income growth in the United States. Fewer workers could boost salaries, and fewer new Americans might help slow government spending, helping to curtail the increase in the federal debt. As Kenneth Johnson, a demographer at the Carsey Institute and professor at the University of New Hampshire, has noted, “At a time of fewer government resources, fewer new people might not be such a bad thing.”

Ric Oberlink, J.D., is a Senior Writing Fellow for Californians for Population Stabilization.