What is the Real Population Crisis?

This week’s edition of the Economist carries a story on the demographic crisis and strikes a rather upbeat tone on our prospects for surmounting it. Unfortunately, the authors wrote about the wrong crisis, the one of rampant population growth exhausting the Earth’s resources that demographers warned of decades ago. Today these same demographers say such a scenario is very unlikely. Additionally, the assertion in the article’s subtitle that the population crisis is solving itself is misleading, because while demographic shifts over the past few decades have allayed fears that humans will one day outgrow this planet, they have created new and unforeseen ones that are just as onerous.

That’s not to say that the article doesn’t raise some interesting points. The first is that we will pass a threshold in the middle of the next decade when for the first time a majority of the world’s population lives in countries with fertility rates at or below replacement. Countries in Europe have been at this point for a while, but in a matter of years China, Indonesia, Brazil, and even regions of India will join them. These countries with stalling birth rates are the same ones that are experiencing incredible economic growth.

This is no coincidence. Lower fertility rates are a proven result of economic growth. Higher living standards, better access to goods, services, and employment, the increasing prevalence of middle class mores and social programs all make it less necessary for adults to have children to assure their own livelihoods. As a result, couples choose to have fewer children. This chart shows the inverse relationship between income and fertility rate. 

Interestingly, there is also evidence that suggests that lower fertility rates are a cause of economic growth. One Indonesian study found that with each child a woman is 20% less likely to get a job. Thus if women have fewer children they are more likely to enter the workforce and contribute to economic productivity. Of course, the economic contribution of the children women choose not to have in addition to the economic activity generated by child rearing (paying for school, buying toys and clothes, getting a babysitter) are lost, but in the short run there is an economic boost. Hypothetically, childless adults are also able to save more, though what they actually choose to do with their money is influenced by the culture in which they live. 

Dramatic reductions in fertility rates – in places like Korea this drop is as drastic as 3 fewer children per couple today than 50 years ago – changes the distribution of the population pyramid, bloating the ranks of the working age cohort. This is good for the economy, as a large percentage of the population is economically productive and independent, and is responsible for the incredible growth witnessed in East Asia and Latin America. However, eventually this large group of working age adults will retire or become unproductive and the worry is, with fertility rates below replacement, there will be an insufficient number of young people to pay for their care. This is the real demographic crisis that the article fails to address.

The article makes a convincing case that plummeting fertility rates are good for growth in the short-term, but what of their long-term consequences? What effect will this constriction at the bottom of the population pyramid (that by this time will not much resemble a pyramid) have on national spending?  Will the economic surpluses accumulated in the boon years be depleted by pension fund outlays and social security payments? Will these countries experience labor shortages and stagnation? The article hints at one way out of the morass. Raise fertility rates.  Some developed nations are bouncing back from rock bottom fertility rates by instituting social programs geared toward mothers, free daycare and tuition assistance, for example, that make it easier to juggle working and rearing. This may be the only feasible solution to preserve a certain standard of living for seniors and avoid bankruptcy, but governments will be working against trends in education, urbanity, and secularity that for one reason or another tend toward childlessness. It’s a tall order, but with the right marketing scheme they might be able to pull it off.