Rapid declines in fertility rates often causes economists to issue dire predictions regarding the economic consequences of an aging population.
For instance, a recent piece in The Economist observed:
For instance, a recent piece in The Economist observed:
“... But as fertility
falls below the replacement rate, two problems emerge, and Asia is facing both
of them. One is that the economic advantages of favourable demography begin to
dwindle. Between 2010 and 2020, according to the Chinese, the number of people
aged between 15 and 59 in the country can be expected to decline by 30m. This
is the core working-age population, so China is already experiencing a
diminishing labour supply and upward pressure on wages.
The other problem is
that some countries (not all) slip into a pattern of very low fertility in
which the rate falls towards 1.5 or less, and stays there for generations as
social norms shift and people abandon the common ideal of a two-child family.”
There are, however, numerous practical advantages to having
smaller populations that are rarely discussed by economists. Less overcrowding, fewer lines, improved traffic flow, better environmental
conditions, and more resources per person are just a
few benefits that will accrue from slowdown or decline in population growth
rates. Citizens of overcrowded countries in Asia should be celebrating the fact
that fertility rates are rapidly declining (I doubt any reasonable Asian is upset about the decline in fertility rates). Quality of life is not just dependent on the share
of working age population or the size of the workforce. If one considers the following relation, it becomes clear that low population growth rate need not be a negative development:
Growth Rate of GDP Per Person = Growth Rate of Overall GDP - Growth Rate of Overall Population
Low overall GDP growth rate can still lead to improvements in living standards if population growth rate is low/zero/negative. Despite frequent stories about Japan's anemic economic performance over the past two decades, it is worth noting that its GDP per capita performance was quite good compared to other advanced economies.
An earlier piece from The Economist in fact provided a more positive perspective regarding falling fertility rates.
UPDATE: WORTH READING
Growth Rate of GDP Per Person = Growth Rate of Overall GDP - Growth Rate of Overall Population
Low overall GDP growth rate can still lead to improvements in living standards if population growth rate is low/zero/negative. Despite frequent stories about Japan's anemic economic performance over the past two decades, it is worth noting that its GDP per capita performance was quite good compared to other advanced economies.
An earlier piece from The Economist in fact provided a more positive perspective regarding falling fertility rates.
UPDATE: WORTH READING
How Japan stood up to old age by David Pilling
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Additionally, if we believe all the hype surrounding the labor saving technologies that are already in existence, and the ones currently on the design boards, then there is really no rationale to be so worried about the potential decline in population growth rates.
If China is facing or likely to face a severe labor shortage
from its one child policy, then why are so many young Chinese college graduates
unemployed? Even in countries with extremely low birth rates – Japan, Italy –
there is no labor shortage now (and, frankly, there is unlikely to be one in
the future). Skill-mismatches and shortage of certain types of workers exist everywhere, but that has more to do with education/training/policies and structural aspects of the economy. Note: Chinese wage increases are a likely result of rapid growth in labor productivity (and some form of the Balassa-Samuelson effect).
If we take prognostications about future trends in
technology seriously (see for instance, the new book The
Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant
Technologies by Erik Brynjolfsson and Andrew McAfee), our bigger concern
should not be the decline in fertility rates. Instead, we should be worried about the increasing lack of well paying middle-class jobs in a world
where machine intelligence is rising rapidly and capital is increasingly acting as a substitute for labor in the production process.
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NOTE:
Demographic shift – rapidly aging population – is a concern in societies where the governments have over promised in regards to old age welfare programs. Potential solutions include raising retirement age, incentivizing saving during the pre-retirement years, healthcare outsourcing, etc.
Demographic shift – rapidly aging population – is a concern in societies where the governments have over promised in regards to old age welfare programs. Potential solutions include raising retirement age, incentivizing saving during the pre-retirement years, healthcare outsourcing, etc.
Another concern, relevant for China and India, is the skewed sex-ratio. That has more to do with societal norms (preference for male children) that are likely to evolve with rising per-capita income (for instance, less need for manual labor often reduces preferences for male children).