The latest edition of the European Journal of Population (1) explores the Economic Consequences of Low Fertility in Europe.
The Journal reports that fertility rates across Europe has declined significantly over the last 50 years. It is now the case that all European countries have fertility rates which are below the long term replacement rate. The average replacement rate in Europe is currently around 1.5 compared with a 2.1 replacement rate required to keep Europe’s population at its current levels.
Whilst migration has played a role in preventing population decline, many countries are likely to see population decline in the future. (Bloom, Sousa-Poza)
The Journal notes that there seems to be little agreement on causes of low fertility. Academics talk of issues such as the increased labour force participation of women; delayed marriage; delayed childbearing and higher social and financial costs. The lack of child-care alongside rigid labour markets are blamed by others. (Bloom, Sousa-Poza)
But where there is agreement, is that Europe is heading towards a potential crisis of persistent low fertility. And such a picture is likely to impact on economic growth. (Bloom, Sousa-Poza)
Population growth has been a subject of concern for many years. It was as far back as 1798 that Malthus talked of population growth inevitably outstripping food supply and causing widespread suffering. Back then the world’s population was just 1 billion. Ehrlich predicted dire social environmental and economic consequences in 1968 (when the population was around 3 bn), an argument he reiterated in 2008 when the population crossed 6.5 billion. (Bloom, Sousa-Poza)
Whilst many argued (and still do) that population growth was bad to humanity and the economy, another view emerged that population growth would “stimulate human ingenuity and lead to rapid technological advancement and innovation”. This would lead to increases in food and living standards. (Bloom, Sousa-Poza)
A final more neutral view emerged in the 1980s, that there was no correlation between economic growth and population growth. (Bloom, Sousa-Poza)
The European Journal of Population highlights a number of new pieces of research which explore the relationship between economic growth and declining fertility.
One piece of research (Bloom, Canning, Fink and Finlay) notes that in the short run a fall in fertility rate reduces youth dependency and increases working age share, thus raising income per capita. But it goes on to say that significant drops in the working age population should be expected. It adds that substantial adjustments in labour force participation or migration policies are likely to be necessary and the “potential negative repercussions on the European Economy are large”. And Clark; Ogawa; Kondo and Matsukura find that public policies encouraging increased employment of women and people over 60 could partly offset the anticipated decline in employment.
Another piece (Lee and Mason) argues that lower fertility leads to higher per capita consumption whilst Zamac, Hallberg and Lindh look to the situation in Japan where total fertility is currently 1.3 per woman. A final piece by Bo Malmberg considers the correlation between population ageing and likely lower house price increases.
At ILC-UK we spend a lot of time exploring the impact of an ageing society on the economy. What this Journal highlights is the economic implications not just of increases in average population ages but those changes alongside a declining population.
The research strengthens the argument for a move towards more flexible working opportunities (for women and older workers) alongside a move towards “gradual retirement” (3).
A separate but closely related issue is of course that of the role of migration. But irrespective of its role, it is clear that Europe faces significant economic challenges ahead if we cannot find ways of facilitating a longer average working life.
David Sinclair
1) Special Issue of the European Journal of Population: “Economic Consequences of Low Fertility in Europe”. Springer. March 2010
2) The degree to which a population is replacing itself, based on the ratio of the number of female babies to the number of women of childbearing age
3) C. Berry (2010) ‘The future of retirement’, ILC-UK, available at http://www.ilcuk.org.uk/record.jsp?type=publication&ID=61