Yves here. Although this post looks at the question of what to do about child abuse in rich countries from an economic perspective, unlike many other accounts, it takes seriously the question of how to adapt to a stagnant or declining population. It suggests investing more money in the citizens to be more productive, especially in education. It also recommends improving health care and allowing more flexible applications for the elderly, and of course includes the common trope of better childcare.
It is remarkable how many of these policies conflict with the default behavior under neoliberalism, especially turning schooling and medical care into opportunities for exploitation.
By David Bloom, Michael Kuhn, and Klaus Prettner. Originally published at VoxEU
Fertility rates have been declining in high-income countries for decades. This trend, along with the increasing longevity of people, poses a challenge to advanced economies. This column argues that a comprehensive set of policies can be used to address economic risks. These policies should promote population growth and education, which is more important than population size for economic development. In addition, policies should promote healthy aging and more choices over retirement decisions, and family-friendly policies to reduce fertility decline should be implemented.
Fertility rates have been falling in high-income countries for decades. From 1960 to 2023, the total fertility rate (TFR, which represents the life expectancy of children per woman, given current age-specific fertility rates) among OECD countries has more than halved – from 3.29 children per woman to at 1.54 (United Nations). 2024a). All but one of the 38 OECD countries (with the exception of Israel) currently have a TFR well below the long-term rate of change of around 2.1, meaning that their working-age population is on a long-term dynamic trajectory (see Table 1). ).
Table 1 Total fertility rates (TFRs) for OECD countries and the world in 1960, 2023, and 2050
The source: United Nations (2024a); see also United Nations (2024b) for an explanation of the TFR estimate and (average) projection methods.
In the article “The End of Economic Growth? Unintended Consequences of Depopulation,” Charles Jones says that the “deep consequences” of low fertility include a growing lack of new ideas that can kill new energy and lead to long-term economic stagnation (Jones 2022). He points out that many models of economic growth focus on innovation and that a larger population with larger absolute numbers of researchers, scientists, and inventors—therefore, more bites at the apple (of success)—may benefit from more (and more important) discoveries. Jones proposes a model where negative population growth leads to an ‘Empty Planet’ situation (Bricker and Ibbitson 2019) where “knowledge and living standards stagnate in a slowly extinct population”. Jones compares this effect against the continuous growth of the population and the improvement of living standards which he calls ‘Expanding The Cosmos’ (Jones 2022). “Can the quality of people replace the number of people in the production of ideas?” Jones reflects in an article at the Stanford Graduate School of Business. “Actually, the answer is no. If the population dwindles to zero, it is hard to imagine that one highly educated person could create a billion people that contain Einstein and Edison and Jennifer Doudna” (Gilson 2022). Although Jones allows that automation and artificial intelligence can help to maintain or improve the standard of living by spreading scientific advances, the central question of the title of his piece sounds like a negative note about declining fertility (Jones 2022).
In our latest paper (Bloom et al. 2024), we review the data and theories regarding the unprecedented decline in fertility that characterizes modern industrialized countries. We agree that declining fertility may hamper innovation. But we argue that changes in behavior, technology, policy, and institutions can influence the economic effects of fertility and labor decline as well as interest rates themselves.
Innovation is undoubtedly the driving force behind economic progress, but it depends on more than just population size. Human capital – the skills and abilities inherent in people and enhancing their ability to create valuable goods and services – is also key to innovation. Another basic feature of human capital is that it can be accumulated for a purpose, usually through investments in schooling, job training, or health.
Education, for example, is an established determinant of macroeconomic performance and economic well-being. It also tends to grow organically under conditions of low fertility, using broad and deep investment in the knowledge and skills of small groups. In this way, low fertility tends to increase people’s ability to innovate and enable us to create more value through work, promoting individual and societal well-being (Lee and Mason 2010, Prettner et al. 2013). Other things being equal, small birth cohorts also help people’s health.
History and empirical research show that the productive characteristics of a population are more prominent than its size in defining its capacity to create knowledge and innovate. A healthy and well-educated population – distinct from the population – represents the human capacity that is rightly recognized in the work of knowledge production as a fundamental determinant of technological progress and economic growth.
Oded Galor’s latest book, Mankind’s Journey: The Origin of Wealth and inequality, underpins our optimistic view of the effects of low fertility on economic growth. This book focuses on the argument that falling fertility and rising education (and subsequent technological progress) leading to human capital formation are the basis for long-term increases in economic prosperity (Galor 2022). Indeed, Galor points out that since the 19th century, life expectancy has doubled and per capita income has increased 14-fold worldwide, fueled by falling interest rates that eased population pressure, paving the way for population accumulation and dramatic improvements in living standards. .
Low and declining fertility also translates into short- and medium-term declines in youth dependency rates, which can fuel the economic growth process by naturally increasing labor force participation rates, savings, and capital accumulation. This increase, known as the demographic dividend (Bloom et al. 2003), contributed up to 2-3 percent to per capita income growth rates in many countries after the end of the post-WWII baby boom. As such, the trend of declining fertility in high-income countries from the 1950s to the present has encouraged – not prevented – economic activity and improved living standards.
The challenge of low fertility is magnified by the fact that it causes an increase in the number of adults. Population aging may naturally affect economic performance to the extent that older adults place greater burdens on social costs in health and long-term care and economic security and tend to work less than their younger counterparts. Social and economic adaptation to these demographic realities is possible.
Retirement policy changes are one such case (Kuhn and Prettner 2023). Such changes have great potential to prevent attrition by removing the barriers to long-term employment faced by people living longer. This strategy is a sign that policies related to declining fertility can be stronger in unison than in isolation: strong investments in the health and education of the younger youth group and the older group may allow that group – as they reach adulthood – to be in good health and sufficiently trained to work profitably past the retirement years . In the midst of the United Nations Decade of Healthy Aging, a frequently asked question remains relevant: are we adding years to life, or are we adding life to years (Bloom 2019)? Along with allowing more choice over retirement decisions, policies that promote healthy aging can alleviate the growing pressure on pension and health systems and the urgent need for long-term care due to an aging population (Bloom 2022). Therefore, stakeholders will benefit from combining synergistic policy initiatives to improve their effectiveness.
Public and private policymakers also have a number of family-friendly policies that can slow or reverse the decline in fertility. These policies, which seek to balance work and family obligations, include tax breaks for large families, extended parental leave policies, and—most effective of all, according to Doepke et al. (2023)—public and/or sponsored child care. Of course, if those policies achieve their goals, the short- and medium-term result would be an increase in the number of youth dependents, achieved at a labor force size that has not begun to accumulate for nearly 20 years.
Policy decisions must take into account the changing nature of work, especially the rise of digitalization, robotics, automation, and artificial intelligence (see Prettner and Bloom 2020). Although these tools provide incredible power, such evolution will not only affect the types of work available and how it is done (as well as what is produced and consumed), but will also affect the way workers interact with each other in society, possibly with important implications for dating and cooperation, with an as-yet-undetermined impact on fertility rates and patterns.
The policy changes considered must be comprehensive, taking into account the social and political consequences that accompany the economic consequences. Loose or restrictive immigration policies may be disruptive at the national or international level, depending on contextual factors, and affect social and economic equality. Additionally, the environmental implications of low fertility should be considered as it may slow or accelerate the pace of climate change depending on whether a few high income earners have the effect of reducing or intensifying greenhouse gas emissions.
Low fertility and declining fertility are undeniable realities in high-income countries around the world. Given the significant uncertainty surrounding the nature and magnitude of the economic implications, ignoring the alarm bell of low fertility would be unwise, especially when fertility decline is paired with another prominent demographic trend: increasing human life expectancy. But demography is not the future. Declining fertility—and its implications for population size and structure—presents major challenges, but they are not insurmountable. Humanity has a remarkable history of identifying and exploiting the opportunities that confront us. In this situation, there are many ways to combat low fertility and deal with its economic consequences. The time is now to mount a rapid and coordinated response to identify and implement the most promising countermeasures to the policy.
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