The year 2024 saw the U.S. fertility rate slipping to a fresh record low of 1.6 births per woman. In the same year, net migration fell sharply, and by 2025 it may have turned negative. This pairing of trends has driven population growth to an unprecedented low, a development with substantial economic consequences.
Perhaps the most conspicuous consequence is a slower overall rate of output growth. Economic expansion can come from either enlarging the labor force or increasing output per worker. In the United States, growth in output per worker has historically averaged about 2 percent per year, with fluctuations that do not track any simple relation to shifts in the labor force. Consequently, a deceleration in labor-force growth should translate into slower economic growth. If labor-force growth falls from 1 percent per year to 0 percent, economic growth could dip from about 3 percent to around 2 percent. Over time, this would yield a smaller aggregate economy, likely accompanied by lower interest rates.
And indeed, U.S. labor-force growth has fallen in step with population growth. In 2023, the Bureau of Labor Statistics projected population growth averaging 0.6 percent from 2023 to 2033, with the labor force expanding at about 0.4 percent annually. That stands in contrast to the 1960s and 1970s, when population rose roughly 1.8 percent and the labor force grew above 2 percent each year. The Congressional Budget Office expects deaths to begin exceeding births by 2030, assuming net migration remains sufficiently high to counterbalance this natural decline for much of the next couple of decades. Without positive net migration, the total population would start shrinking toward the end of Donald Trump’s second term.
If anything, the projections from the BLS and CBO—and similar efforts—tend to be overly optimistic. They typically assume fertility rates will plateau just below today’s level (or even rise) even as other nations have seen fertility fall to substantially lower levels. They also assume ongoing positive net migration despite near-zero levels today and little prospect of increases in the next couple of years. Very few people are crossing the southern border right now, and the Trump administration has curtailed immigration through nearly every legal channel as well.
Some immigration skeptics contend that total GDP growth does not matter as much as GDP per capita because it is the latter that affects the well-being of native-born residents. That view is mistaken. Most importantly, aggregate GDP growth matters for national defense and for our geopolitical standing. If only GDP per capita mattered, the geopolitical contest with China would be far less urgent, and Europe would be under the iron grip of Grand Duke Guillaume V of Luxembourg.
A second set of macroeconomic consequences of a slowing population is best understood through the lens of real interest rates. This topic drew considerable attention even before the COVID-19 outbreak, when some economists argued that slower population growth could fuel secular stagnation. In that view, slower population growth reduces demand for new capital goods—a smaller workforce would require fewer factories, vehicles, and other real assets—which puts downward pressure on interest rates.
This effect is reinforced by a fall in the marginal returns to capital as more capital per surviving worker yields smaller incremental gains. In plain terms: an understaffed factory is less productive, a restaurant needs more waitstaff, cars do not yet drive themselves, and a house that sits empty is of little use. Through this channel, slower population growth tends to depress returns across the economy.
Downward pressure on rates is further intensified by aging, which typically leads people to save more for retirement. This boosts the supply of loanable funds and lowers borrowing costs. Commentators often cite Japan’s enduringly low-interest-rate environment as evidence that borrowing becomes cheap in aging, shrinking societies.
That said, the impact of slower population growth on interest rates is not as clear-cut as its effect on output growth. Perhaps the strongest countervailing influence comes from the government’s need to finance its spending. As population growth slows, a smaller share of the population shoulders the burden of the national debt and the cost of providing public goods like national defense. This dynamic can make Treasuries riskier, pushing interest rates up. Higher rates, in turn, raise future deficits.
This mechanism also interacts with aging. As smaller cohorts enter the labor force, the economics of programs such as Social Security and Medicare shift. With fewer workers supporting more beneficiaries, financing these programs becomes harder. That could imply reduced benefits (politically unlikely), higher taxes (unappealing), or larger deficits (likely). Relying more heavily on deficits would again push interest rates higher.
Policymakers have a range of potential, and potentially fruitful, responses to a slowdown in population growth. Options include measures to raise fertility rates (or at least slow their decline), though past attempts in that area have had only mixed success. As a recent study noted, “the bottom line is that whatever effects pro-natal policies or broader demographic changes may have produced, none has produced a durable reversal back to replacement-level births.” And of course, increasing fertility rates would not deliver economic payoffs for many decades.
In terms of immigration policy, expanding admissions (or allowing a larger share of current residents to stay) remains another obvious avenue. That strategy has direct positive implications for growth and for the fiscal outlook. Immigrants typically exert a more favorable fiscal impact than similarly skilled natives, given that many arrive after completing K-12 schooling and are not immediately eligible for a broad range of welfare or social insurance programs. Yet skepticism about their fiscal benefits often arises from European experiences, where differing migrant selection, more generous welfare states, and stricter labor-market barriers have yielded different numbers. Moreover, immigrants contribute to the burden of existing federal debt and future unfunded liabilities, which can actually make their overall fiscal impact more favorable.
Where immigrants are less helpful is in sustaining long-term obligations such as old-age pensions and health care programs, since these systems naturally strain when older populations outnumber workers. These programs can be reformed, and doing so is technically straightforward, but politically fraught. The most effective reform proposals would deliver a triple dividend: they would reduce program costs, lessen the tax burden on younger workers, and incentivize older workers to remain in the labor force longer.
Finally, attention to boosting output per worker remains a central option. Some proponents argue that a shortage of young workers could spur the development of productivity-enhancing technologies that would completely offset the growth slowdown. A more mainstream view contends that fewer minds will generate fewer breakthroughs, slowing productivity gains. Regardless of which view one subscribes to, the government can contribute by funding scientific research, enabling housing production in productive regions, reducing trade barriers, permitting data-center builds, ensuring access to affordable and reliable energy, and crafting policies that are transparent and predictable for business.
Slower population growth appears likely to persist. Policymakers can mitigate some of the adverse effects by keeping the United States appealing to immigrants, adjusting entitlement programs to new demographic realities, and pursuing productivity gains. Yet, in the absence of a genuine AI-driven leap, a future characterized by slower economic growth seems probable.
