I Boom or Bust ? The Economic Effects of the

ETWEEN 1947 AND 1962, the population of the United States grew at an average annual rate near 2 percent, a large increase from the average annual growth rate near 1 percent during the 20 years prior to World War II. Moreover, since 1962, the average population growth rate has fallen to its pre-war level. This large but temporary increase in the population growth rate, more familiarly called the baby boom, raises an interesting and important question: How do such large changes in the population growth rate affect a developed economy? Undoubtedly, the baby boom has already had a large effect on the U.S. economy, especially on the composition of goods and services produced by the marketplace and the government. But the economic effects of the baby boom are more basic than the optimal mix of convertibles and minivans, or the number of school buildings vis-a-vis nursing homes, because such large changes in the population growth rate affect aggregate consumption and saving. Specifically, a large influx of workers requires more capital to maintain the same level of labor productivity, which in turn affects individual living standards.