PRESENT AND VOTING

A Threat to Economic Growth: Declining
Birth Rates

We are inclined to think that bigger populations cause complicate fast economic growth. However, this kind of approach ignores how dependent our production and consumption is to the size of the population. With decreasing birth rates in the developed nations, our economic system now faces a vast threat. For centuries, we have organized our economies in a way that depends on fast population growth. Statistics show that for the following decades this trend will have to change.

 

Birth rates have started to fall for several reasons. The environment of prosperity after the second world war had given way to the generation of Baby Boomers. However, this positive relationship between prosperity and birth rates started to change after the second half of the 20th century. This is mainly because the values, traditions, and family norms are changing. With the increasing labor force participation of women, raising marriage age, and a more individualized society, the role of having more children in one's life has started to decrease. Besides, as health conditions were getting better, giving way to declining infant mortality rates, the urge to have more children also decreased substantially since most of the kids were now not dying at an early age. People's expectations from life became more career-oriented while postmodern values increased the importance of individual will and individualization.

The first one of them is to increase the general level of education and technical capabilities of the labor force so that every hour of work will have more value-added. Instead of using our labor force in simple assembly lines, we can have research and development (R&D) or services industry developed. This shift to technology and services in production trends would increase the value of what one worker produces in one hour.

 

The second one is to increase the physical capital in a country so that every worker can have the necessary equipment to fulfill their duties and use their education most efficiently. However, this part is already developed in most of the nations with declining birth rates.

 

The last and perhaps the most sustainable way to increase productivity is to increase the level of technology used. It would be very nice if technological development would permit a job that requires 10 people to be done by just one person. This kind of transition would decrease the necessity of population in production and growth.

 

We are lucky in the sense that this demographic trend also coincides with a popularization in automation. We have the chance of using automated devices for blue-collar workers if the amount of them provide to be not sufficient. As a utopia, we can even imagine a world with far less population than right now in which robots work and produce while working as a human being is considered to be a privilege.

A less sustainable solution with many side effects is to ease migration policies as developed nations. Many European nations, especially Germany, look at migration as a fresh workforce. However, relying on migrants is not a sustainable solution since the countries which the migrants come from will also go through the same demographic transition in time. It can only be used to save the day until the adult migrants become elderly people themselves. Besides, if a migration policy is not suited for a smooth transition that would protect the domestic blue-collar workers it would also have political consequences. The most prominent argument of the Eurosceptics relies on anti-immigration discourse since there are millions of domestic workers who lose jobs due to poorly created immigration policies. 

Although a systematic increase in productivity achieved through automation and R&D might constitute solutions for the supply side, there are still many problems present. It is a fact that the elderly have less income and willingness to spend than the youth. Thus, aging societies mean a fall in the demand for goods and services produced. It is a serious question of how the aggregate demand can be raised with fewer people or changed in composition.

 

Aging societies also mean states have to create action plans to relieve the burden on the healthcare systems. Currently, the expenses of the elderly such as pensions and healthcare expenditures are all paid by the taxation of the working population. If the fraction of the population who is actively working goes down and the rate of retirees increases, the tax burden on the working population will substantially increase.

by Didem Özçakır

Incentives to increase the birth rate is still a part of the solution, though it is not certain how successful they would be. Providing financial incentives can work only up to a certain point since it is technically impossible for a state to pay for a substantial majority of the costs of every child. Besides, the trends of changing family life, labor force participation of women, and individualization probably cannot be reversed with monetary incentives in democratic countries.

To increase the labor force, raising the retirement age is now being discussed in Europe. Many nations have plans to raise the retirement age over 65 in the following decade. Increasing the labor force participation of women is another idea that can be followed.

 

Declining birth rates will transform the way we think about economic growth. We will have to form new rules for the economy, and it will be our generation who is going to accomplish this. (1)

To understand why declining birth rates pose a threat to economic growth, we should first look at how an economy grows if there were not any complications. To produce, we need factors of production: Labour force and physical capital. The effectiveness of these elements depends on the education and skill set of people, the organizational skills of the industry, and the level of technology in physical equipment that is being used. It is no surprise that an engineer (with advanced education) in Apple (with the best technology and physical environment) will be producing more value than an agricultural worker. For growth to be achieved in a country, the rate of people at the scale of the engineer must increase. Even if we still have agricultural workers, they will be more productive if they have the latest model tractor. If the number of people in the labor force will be increasingly less and less every year, we need to focus on the other factors that are used in production, thus growth.  What we have to do to minimize the effects of declining birth rates is to increase the productivity of the already existing labor force. This can be done in majorly three ways. 

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