Global fertility has collapsed, with profound economic consequences

2023/06/03 Leave a comment

Useful reminder that expanded immigration is unlikely to be a viable long-term strategy:

In the roughly 250 years since the Industrial Revolution the world’s population, like its wealth, has exploded. Before the end of this century, however, the number of people on the planet could shrink for the first time since the Black Death. The root cause is not a surge in deaths, but a slump in births. Across much of the world the fertility rate, the average number of births per woman, is collapsing. Although the trend may be familiar, its extent and its consequences are not. Even as artificial intelligence (ai) leads to surging optimism in some quarters, the baby bust hangs over the future of the world economy.Listen to this story.

In 2000 the world’s fertility rate was 2.7 births per woman, comfortably above the “replacement rate” of 2.1, at which a population is stable. Today it is 2.3 and falling. The largest 15 countries by gdp all have a fertility rate below the replacement rate. That includes America and much of the rich world, but also China and India, neither of which is rich but which together account for more than a third of the global population.

The result is that in much of the world the patter of tiny feet is being drowned out by the clatter of walking sticks. The prime examples of ageing countries are no longer just Japan and Italy but also include Brazil, Mexico and Thailand. By 2030 more than half the inhabitants of East and South-East Asia will be over 40. As the old die and are not fully replaced, populations are likely to shrink. Outside Africa, the world’s population is forecast to peak in the 2050s and end the century smaller than it is today. Even in Africa, the fertility rate is falling fast.

Whatever some environmentalists say, a shrinking population creates problems. The world is not close to full and the economic difficulties resulting from fewer young people are many. The obvious one is that it is getting harder to support the world’s pensioners. Retired folk draw on the output of the working-aged, either through the state, which levies taxes on workers to pay public pensions, or by cashing in savings to buy goods and services or because relatives provide care unpaid. But whereas the rich world currently has around three people between 20 and 64 years old for everyone over 65, by 2050 it will have less than two. The implications are higher taxes, later retirements, lower real returns for savers and, possibly, government budget crises. 

Low ratios of workers to pensioners are only one problem stemming from collapsing fertility. As we explain this week, younger people have more of what psychologists call “fluid intelligence”, the ability to think creatively so as to solve problems in entirely new ways . 

This youthful dynamism complements the accumulated knowledge of older workers. It also brings change. Patents filed by the youngest inventors are much more likely to cover breakthrough innovations. Older countries—and, it turns out, their young people—are less enterprising and less comfortable taking risks. Elderly electorates ossify politics, too. Because the old benefit less than the young when economies grow, they have proved less keen on pro-growth policies, especially housebuilding. Creative destruction is likely to be rarer in ageing societies, suppressing productivity growth in ways that compound into an enormous missed opportunity. 

All things considered, it is tempting to cast low fertility rates as a crisis to be solved. Many of its underlying causes, though, are in themselves welcome. As people have become richer they have tended to have fewer children. Today they face different trade-offs between work and family, and these are mostly better ones. The populist conservatives who claim low fertility is a sign of society’s failure and call for a return to traditional family values are wrong. More choice is a good thing, and no one owes it to others to bring up children. 

Liberals’ impulse to encourage more immigration is more noble. But it, too, is a misdiagnosis. Immigration in the rich world today is at a record high, helping individual countries tackle worker shortages. But the global nature of the fertility slump means that, by the middle of the century, the world is likely to face a dearth of young educated workers unless something changes.

What might that be? People often tell pollsters they want more children than they have. This gap between aspiration and reality could be in part because would-be parents—who, in effect, subsidise future childless pensioners—cannot afford to have more children, or because of other policy failures, such as housing shortages or inadequate fertility treatment. Yet even if these are fixed, economic development is still likely to lead to a fall in fertility below the replacement rate. Pro-family policies have a disappointing record. Singapore offers lavish grants, tax rebates and child-care subsidies—but has a fertility rate of 1.0. 

Unleashing the potential of the world’s poor would ease the shortage of educated young workers without more births. Two-thirds of Chinese children live in the countryside and attend mostly dreadful schools; the same fraction of 25- to 34-year-olds in India have not completed upper secondary education. Africa’s pool of young people will continue to grow for decades. Boosting their skills is desirable in itself, and might also cast more young migrants as innovators in otherwise-stagnant economies. Yet encouraging development is hard—and the sooner places get rich, the sooner they get old. 

Eventually, therefore, the world will have to make do with fewer youngsters—and perhaps with a shrinking population. With that in mind, recent advances in ai could not have come at a better time. An über-productive ai-infused economy might find it easy to support a greater number of retired people. Eventually ai may be able to generate ideas by itself, reducing the need for human intelligence. Combined with robotics, ai may also make caring for the elderly less labour-intensive. Such innovations will certainly be in high demand.

If technology does allow humanity to overcome the baby bust, it will fit the historical pattern. Unexpected productivity advances meant that demographic time-bombs, such as the mass starvation predicted by Thomas Malthus in the 18th century, failed to detonate. Fewer babies means less human genius. But that might be a problem human genius can fix. 

Source: Global fertility has collapsed, with profound economic consequences

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Mohamed: The Line’s Naughty List: The demographic crisis isn’t going away

2023/01/04 Leave a comment

Another article on the limits of immigration to address weak economic growth although ignoring the productivity issue. But just like increasing immigration is unlikely to significantly counter demographic trends of an aging population, a focus on increasing fertility is, given experience in other jurisdictions, unlikely to move the needle significantly.

Governments and policy makers need to consider alternative scenarios of how to manage an aging population rather than just focussing on semi-effective measures to slow down the trend:

The nearly concluded year of 2022 may well be remembered as the year generational politics finally arrived in Canada, even if nobody wants to talk about the root of our demographic dilemma. 

Saddled for over a decade with stagnating wages, escalating day-to-day living costs, and one of the world’s least-affordable housing markets, Canadians under the age of 40 finally said “enough” in 2022; making generational inequality, for the first time, a major nationwide political issue. 

Some of Canada’s pissed off young adults have found their messiah in 43-year-old Conservative party leader Pierre Poilievre, a rather cantankerous fellow himself. Poilievre has masterfully used Canada’s housing affordability crisis to tap into a groundswell of support among younger Canadians — recent polling show Poilievre’s Conservative party holding a double-digit leadamong voters between the ages of 18 and 34.

But even if their voices are finally being heard, young Canadians have precious little to look forward to as they start their working lives in earnest. The OECD projects that Canada’s economic growth will be dead last among advanced countries over the next decade. This means that young Canadians entering the workforce in the 2020s can expect the same grim job prospects, stagnant real incomes, and diminished purchasing power as their older cohorts who graduated into the Great Recession (insert James Franco “First time?” meme here). 

Barring a miraculous change of course, Millennial and Gen-Z Canadians will not only be worse off than their parents but will also see their standards of living deteriorate relative to people the same age in other countries. 

Yet for all his bluster and this real opportunity for a political breakthrough, Mr. Poilievre has offered no genuine solutions to this generational slide. 

So what can be done to reverse Canada’s great inter-generational stagnation? For one thing, we can attack the demographic underpinnings of our dismal growth projections.

The biggest challenge will be to mitigate the effect of our aging population on our labour markets. A record 307,000 Canadians retired last year and a further one-in-five workers are nearing retirement age. Retirements are pushing job vacancies to record levels and leaving behind a shrinking workforce to pick up the slack. By 2027, there will be just three working-agedCanadians for each senior citizen.

Policymakers in Ottawa are acutely aware of this problem and are banking on an already overburdened immigration system to provide an easy fix to our labour market woes. Last month, the Trudeau government unveiled an ambitious plan to bring in 500,000 immigrants per year by 2025 (an increase of nearly two-thirds from average annual admissions between 2015 and 2019). Since this announcement, even progressive outlets have voiced concerns about our capacity to absorb such a sharp influx of new Canadians.

As Andrew Potter recently wrote in The Line, the new immigration target places Canada’s fragile pro-immigration consensus at risk. New Canadians may well bear the brunt of intensifying populist anger if they’re seen as contributing to the country’s health-care and housing-affordability crises. (Chinese immigrants, for example, have already incurred a racial backlash for their alleged role in driving up housing prices in British Columbia’s Lower Mainland.)

But even under ideal conditions, immigration would not be a silver-bullet solution to the labour-market challenges created by an aging native-born population. The average Canadian immigrant arrives in their late 20s and may need years to become licensed to work in their chosen occupation. Further, working immigrants often bring both non-working spouses and elderly relatives with them. These are just a few of the frictions that make the economic benefit of large-scale immigration subject to the law of diminishing returns. 

We also need to weigh the potential economic gains of increased immigration against the challenge some new immigrant communities may pose to our political climate by “importing” combustible ethno-cultural grievances. As I wrote in The Line earlier this year, diaspora politics is becoming increasingly visible in Canada and played a central role in Patrick Brown’s Conservative party leadership campaign.

Large-scale immigration has been a massive economic and cultural boon to Canada over the past half-century but it’s becoming increasingly evident that we’re fast approaching an inflection point. Future increases to immigration are likely to generate diminishing economic returns and escalating political costs. 

This leaves us with a rather simple equation. To reverse our forecasted economic slide, we must increase the supply of young Canadians relative to the number of older ones. To do this, we must find ways to encourage reproductive-aged Canadians to have more children. The arithmetic could not be more straightforward.

Unfortunately, this is the exact opposite of what’s happening. As I wrote back in August, Canada’s birth rate, which has long been the lowest in the Anglosphere, hit a record-low of 1.4 births-per-woman (bpw) during the height of the COVID pandemic in 2020. While it bounced back slightly last year, it still falls well below the OECD average of 1.7 bpw. 

A quick glance at the average price of a single-family home or daycare space in any major Canadian city should explain why cash-strapped millennials aren’t rushing to bring more children into the world. Indeed, beyond tackling our broader affordability crisis, all orders of government could be doing more to make starting families more affordable for young Canadians — Canada’s level of public spending on family benefits falls well below the average among OECD countries. 

The Trudeau government’s recently concluded bilateral agreements mark the third attempt at Canada-wide child care. Yet fewer than nine months after the last deal was inked, political will already appears to be faltering.

Part of the problem is that the bilateral agreements were pitched as a mechanism to guide Canada out of the “she-cession” created during the first year of the pandemic. This rationale rings hollow now that women’s labour force participation has bounced back to (and exceeded) pre-pandemic levels. 

Tying new family policies to Canada’s longstanding fertility crisis and, by extension, our future economic vitality, could give these initiatives more staying power.

One thing’s clear: the “f-word” (fertility) can no longer be a forbidden term in Canada’s political lexicon. Until we get serious about that, our demographic and political challenges will only get worse. 

Rahim Mohamed is a master’s student at the University of Calgary’s School of Public Policy. His writing has appeared in The Hub, the National Post, and CBC News Calgary.

Source: The Line’s Naughty List: The demographic crisis isn’t going away 

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