Can countries cope up with falling birth rates?

With birth rates continuing to decline in both nations, it is tempting to use the term “timebomb.” However, demographers, the experts in population change, strongly dislike this term. The first thing you need to know about the so-called demographic timebomb facing countries such as the UK and the US is to avoid calling it that.

“I hate the phrase,” says Sarah Harper, a professor of gerontology at the University of Oxford. “There is no demographic timebomb; it’s part of the demographic transition. We anticipated this, and it was expected to happen throughout the 21st century. We should have been preparing for this for some time.”

However, the scale of the issue is significant. To maintain or grow a population, a country needs a birth rate of between 2.1 and 2.4 children per woman, known as the “replacement rate.” Yet, the latest figures for England and Wales show that the total fertility rate fell to 1.49 children per woman in 2022, down from 1.55 in 2021, continuing a decline since 2010. Similar trends are observed in Scotland and Northern Ireland, which record their data separately. In the US, the fertility rate hit a record low of 1.62 last year, a stark drop from 3.65 in 1960.

“Two-thirds of the world’s countries now have childbirth rates below the replacement rate,” adds Prof Harper. “Japan, China, and South Korea have some of the lowest rates globally.” Currently, population growth is mostly limited to sub-Saharan Africa.

But why is there concern about falling birth rates? The economic ramifications are significant, as countries face aging and declining populations, and a smaller workforce relative to the number of pensioners. For instance, how will a nation sustain economic growth if companies cannot recruit enough workers? How can a smaller workforce fund the pensions of a larger retired population? These questions trouble government economists.

To counter declining birth rates, countries can make it easier for women to have children by offering more generous childcare provisions, tax breaks, and extended, fully-paid maternity leave. However, while these policies might slow the decline, they rarely reverse it. The more educated and economically active women become, the more they tend to prioritize their careers over having children, often resulting in fewer or no children.

There are two main strategies for dealing with a falling birth rate: keeping the population healthier and employed for longer, or increasing large-scale immigration. Singapore, one of the fastest-aging countries, is focusing on the first strategy.

“There is a lot of effort being put into raising the retirement age, training in midlife, and encouraging companies to hire older workers,” says Prof Angelique Chan, executive director of Singapore’s Centre for Ageing Research & Education. In Singapore, the retirement age is set to rise from 63 to 64 in 2026, and to 65 by 2030, with re-employment opportunities extending to age 70. The government is also ensuring that every citizen has a doctor to maintain healthier cohorts capable of working longer.

In the US, Ronald Lee, emeritus professor of economics at the University of California, notes that a growing number of elderly Americans are working to cover their living expenses. “The proportion of consumption of 65-year-olds and older funded by continuing to work is significantly higher in the US than in other developed countries,” he says, emphasizing that older people remaining in the workforce is beneficial.

However, increasing immigration is another solution. Prof Harper points out that migration could offset lower birth rates demographically, though political and policy challenges exist. “Allowing countries with high birth rates and large workforces to contribute globally could address the demographic imbalance,” she suggests. Despite political resistance, some countries already adopt selective immigration strategies in sectors like healthcare.

Ultimately, developed countries will need to make people work longer or increase immigration, likely both, to address the demographic challenge. Achieving political consensus on these measures is challenging, as they are not typically popular with voters. Nonetheless, demographic experts agree that such steps are necessary to ensure economic stability.