Sta Hungry Stay Foolish

Stay Hungry. Stay Foolish.

A blog by Leon Oudejans

A World With Fewer Babies Spells Economic Trouble (Bloomberg)

“Forget the prophecies saying overpopulation will starve the planet. The human race is approaching the point where it’s no longer reproducing enough to expand the global headcount. In the world’s biggest economies — the U.S., China, Japan and Germany — it’s already happening or will soon. Economists say these countries could see slower economic growth unless they increase their working-age populations by accepting immigrants, possibly from regions with higher fertility rates, like parts of Asia and Africa. Lower fertility rates — the number of live births per woman — could also threaten safety-net programs like pensions and health care.

1. How big is the dropoff?

Fertility rates have dropped globally to about 2.4 this decade, from 5 in the 1960s, according to the World Bank. That’s getting close to the rate, about 2.1, required to keep the world’s population stable in the long run. Many wealthier countries, particularly in Europe, are well below 2.1. Several nations — Moldova, South Korea, Singapore — share the world’s lowest fertility rate of 1.2. Most developing nations have much higher rates, with many in Africa at 5 or above.

2. Why has this happened?

Lots of reasons. With advances in agriculture and medicine, people are living longer and far fewer children are dying young. Increasing urbanization means families don’t need as many kids to work the fields. More women are delaying marriage and children for work and education. Economists have also found an association between low fertility and higher incomes. Once a country’s output per person passes $10,000 annually, women tend to give birth to no more than two children. Education and government policies, meanwhile, have sharply reduced births among teenage girls.

3. What will this do to the world’s population?

The United Nations calculated the world’s population as of 2017 at 7.6 billion people, a number it projects will grow to 11.2 billion at the end of this century, after which it could begin to fall. But a lot of countries are going to shrink before then. With a fertility rate of only 1.6, China’s population will drop 28 percent by 2100, ceding the title of world’s most-populous nation to India, the UN predicts. With a fertility rate of 1.4, Japan’s population will plunge 34 percent by 2100. The U.S.’s headcount is expected to keep growing, despite a low fertility rate of 1.8, because of large numbers of immigrants, though government policies could change that.

4. What happens when a country’s population stops growing?

Its economy can still expand, but the pace over the long run would be limited to the speed at which productivity — output per hour worked — is rising. Since the 2007-2009 recession, productivity gains have been relatively meager, making low fertility rates an added problem. If fewer people work, there’s less income to go around. Fewer workers also mean less tax revenue for retirement and health-care programs. And that means governments might have to cut benefits, raise taxes or borrow more, pitting the old and young against each other.

5. Where is this playing out now?

In Japan, employers often struggle to fill job vacancies. Spending on health care and pensions has swollen Japan’s public debt to more than twice the size of its economy. The International Monetary Fund has estimated that the country’s annual economic growth could be 1 percentage point lower for the next three decades because of Japan’s aging population. That means the country’s economy, forecast to expand 1 percent this year and next, may stagnate further.

6. What can governments do?

Immigration can help, but not all countries are willing to open their doors. Japan, historically wary of immigrants, under Prime Minister Shinzo Abe wants to allowmore foreign workers for limited stays. Abe is also encouraging more automation and more women in the workforce. Germany’s fertility rate, at 1.5, is the highest in decades, thanks in part to a recent immigration surge but also to adoption of family-friendly policies, including raising parental-leave allowances. But in France, which for years has had pro-baby policies, such as cash bonuses and tax breaks for parents, the 1.96 fertility rate is its lowest level since 2005.

7. Can China reverse its expected population decline?

Not likely. China changed its rules in 2016 to allow two children and now may remove limits altogether. While that may encourage some families to have more babies, it won’t give a major boost to the national fertility rate, according to Chinese demographer Cai Yong. Among the obstacles: high living costs, long work hours and surging child-care expenses.

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