Posted by: Josh Lehner | November 24, 2014

Demographics Matter. (Graph of the Week)

Demographics matter. Quite a bit, to be sure. It has even been said that demography is destiny. This is one thing I have really learned about in this job. Specifically the age cohort component models that Kanhaiya, the state demographer, uses for his work and the associated forecasts he does. It helps you think through the process and impacts of these big, generational shifts that have long lasting impacts, rather than some short-term impacts around business cycles or specific industries or firms.

In this edition of the Graph of the Week we look at the college age population in the U.S. as an example. The generations are easy to spot. The Baby Boomers reached their peak college years in the late 1970s and early 1980s, followed by the much smaller Generation X in the 1990s. Recently Millennials hit their peak college years.

CollegeAgePop19702030

The decline in the number of college age adults from the relative peak in 1980 through the trough in 1995 was 18 percent or nearly 1 in 5 fewer college age adults relative to just 15 years earlier. These changes can and do have tremendous impacts on the economy, housing, workforce and even sports.

In terms of these changes on housing, young adults typically live in multifamily rental apartments. It is no surprise that MF consisted of a larger share of new homes built back in the 1970s, 1980s and again in more recent years. Preferences matter, but so too do demographics. On the flip side, it is also not a surprise to see many more SF homes built during the 1990s and 2000s when the large Baby Boomer cohort was in their prime working ages, peak earning years and had families. Of course, many other factors were at play as well, especially regarding the housing bubble.

In terms of educational attainment and college enrollment, many discussions in recent years focused on the fact that enrollment surged due to the Great Recession. There is no doubt this played a key role, given the dearth of job opportunities in the economy. However, the timing also coincided with the largest subset of the Millennials entering their college years as well. So the ranks at colleges and universities swelled for both reasons, which are also somewhat temporary factors. Demography is now working against our institutions of higher education, as is a stronger economy. These trends can and are being offset by a larger and larger share of young adults attending college, in hopes of landing a high-wage job in the future.

Finally, one other place where these big demographic factors can come into play is athletics. It is common for sports fans to discuss the great talent and depth of the NBA in the late 1980s and early 1990s, only to lament the perceived decline in both following Micheal Jordan’s retirement. However, both the top talent and depth of good players is back in recent years. It is quite likely that at least some of these swings are due to demography. As mentioned above, the number of college age individuals was nearly 20 percent lower in the mid-1990s than in the early 1980s, therefore the big pool from which these high-quality, professional athletes emerge was much smaller. To be a top talent in the late 1980s one had to beat out competitors from a much bigger pool than someone in the late 1990s. Let’s call this The Demographic Theory.

A similar story can be told regarding NFL quarterbacks. In recent years many commentators have tried to figure out why there appears to be many more young quarterbacks who appear ready to play in the NFL from their first or second year. Historically QBs would sit and learn the system and the league, however in recent years this has not been the case. While some of the reasons given for this trend (better coaching and systems at earlier ages, better training, teenagers today are better at multitasking, etc) make some sense, I suspect at least some of it has to do, again, with demography. The pool of athletes is much larger today than 15 years ago, so not only are there more individuals to choose from, but to reach the highest level, one has to outperform a larger number of competitors as well.

Of course, all of this does not rule out individual greatness in athletics either. During the baby bust of Generation X, there were and are quite a few exceptional talents. To name just two that became professionals during the mid- or late-1990s, I would go with Kobe Bryant and Peyton Manning. Clearly demography cannot explain their talent, but it can impact the broader landscape in terms of the depth of talent elsewhere, aside from such great players.


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