It doesn’t seem that long ago that one of the big worries of the world was that it was becoming overpopulated. Even nowadays, the reaction to updated global population numbers is often the same, that there are just too many people in the world and that some sort of Malthusian* dystopia awaits us, with resources running out to feed and shelter all of us.
More recently however, these thoughts have started to give way to the fear of a different type of dystopia, one where the world is full of old people and where there is a shortage of young people to keep the wheels of the economy turning.
These fears came into sharp focus earlier this year, when China’s National Bureau of Statistics (NBS) announced that its population had shrunk by 2.1 million last year (following a drop of 850,000 in 2022, its first since 1961, when China faced a major famine). While the declines partly reflected the impact of Covid-19, they were also the result of the ongoing fall in birth rates that China has been going through over several decades, even after the 2015 abolition of its one-child policy.
New births fell 5.7% last year, to 9 million, putting the number of births at 6.39 per 1000 people. This puts China in the same category as Japan (6.3 per 1000), a country that has for years been held up as an example of population decline, and many European countries (though they are some way off South Korea’s 4.9 per 1000).
Coupled with falling birth rates has been another phenomenon: increased life expectancy, which in turn is leading to an increase in the percentage of older people. According to the NBS, China’s population aged 60 and above reached 297 million last year (21.1% of the population), up from 280 million in 2022.
Similarly, in Japan, 10% of the population was over the age of 80 last year and 29.1% was over the age of 65.
China, Japan and South Korea may be the extreme examples of populations where birth rates are falling and people are getting older, but their problem is one faced by countries around the world. Europe, the Americas and other parts of Southeast Asia face similar issues (for example, in Italy, 379,000 births were recorded last year, the lowest number since the country’s unification in 1861).
Most developed countries have seen their populations growing older and a fall in their fertility rates, a key rate watched by demographers. The fertility rate is defined as the average number of children born per woman. The global average fertility rate is 2.3 children, just above the so-called replacement rate of 2.1 (the fertility rate required to keep the population number stable, all other factors being equal).
Most developed countries are well below the replacement rate, according to UN numbers: Hong Kong (0.8), South Korea (0.9), Japan (1.3), Italy (1.3), Switzerland (1.5), UK (1.6), Australia (1.6) and the US (1.7) are some of the most notable examples.
But what is perhaps more startling is how many developing countries also fall below the replacement rate. These include the likes of India (2), Bangladesh (1.9), Brazil (1.6) and Thailand (1.3), while many others are at or just above the replacement rate (South Africa is at 2.3).
And while there are many countries with much higher fertility rates – mostly in Western and Central Africa – even these are on a declining trajectory, as our chart below shows.
The demographic transition
Demographers explain these broad trends in terms of what’s known as the demographic transition. The demographic transition refers to a shift in societies whereby, as they become wealthier, so they become older and see their birth rates fall.
The demographic transition can be used to explain the chart below, which plots the rise in the global population and the shifts in the rate of population growth, from 1700 onwards.
In pre-industrial times, death and birth rates were both high, and the world population grew at a slow, but steady rate. However, the arrival of the Industrial Revolution in the late 18th and 19th centuries (first in Europe, then North America and then Asia and beyond) brought with it a decline in death rates that helped accelerate population growth.
These falling death rates were caused by a combination of factors, including improved incomes, better food supplies (the result of large-scale farming and other improvements in farming methods) and new technologies, notably in healthcare (eg vaccinations) and sanitation.
The ’population explosion’ that followed came about as birth rates continued to rise even as death rates declined (with a few temporary drops caused by events such as the Second World War) and created a kind of virtuous circle for industrialising countries: they benefited from rising numbers of workers and consumers for the products and services they were producing.
This phase remained in place for about 150 years, before the rate peaked in the 1960s. Perhaps poignantly, the world population growth rate peaked in 1963, the year that the Beatles – the very symbols of a vibrant youth culture – came onto the scene, at a rate of 2.3%.
That rate has been falling ever since, the result of factors such as:
- Declining infant mortality rates have led many parents, especially in rural areas, to choose smaller families, safe in the knowledge that their children will survive to an older age.
- Prohibitions on child labour and compulsory schooling have led parents to value investing more in their children’s education, and to maximise that investment by having fewer children.
- Similarly, what Chicago economist Gary Becker referred to as a “flight to quality”: as incomes rise, parents prefer to have fewer children, focusing their resources in ensuring the best outcome for their children.
- Changing education and employment dynamics, particularly the erosion of discriminatory practices against women, have led to more women following careers previously dominated by men and exercising their choice to have or not to have children.
While this trend has unfolded, the trend of falling death rates hasn’t shown any signs of abating. Improvements in farming, nutrition and breakthroughs in medical technologies continue to contribute to longevity around the world. On current trends, therefore, the world population will stop growing sometime near the end of this century but it will be much older.
In short, the phenomenon of aging populations and falling birth rates is one that all societies in the world will have to face at some point. And aging populations bring a number of problems with them, namely:
A high dependency ratio: The dependency ratio is often defined as the percentage of the population over 70, relative to the working population. Those over 70 are assumed to draw more on social services such as healthcare and to contribute less to pension funds and tax. At the same time, as the younger, working-age population falls, so contributions to the fiscus and pension funds fall. The result is fewer resources spent on productive parts of the economy and a likely fall in productivity.
Wasted infrastructure: as populations get older and potentially less productive, the need for infrastructure more suited to a younger, working population profile (schools, housing, urban transport) falls away.
A decline in innovation: younger adults have more of what is known as “fluid intelligence”, referring to the ability to solve new problems and engage in new ideas. Countries with older age profiles also tend to file fewer patents, according to The Economist (‘It’s not just a fiscal fiasco: greying economies also innovate less’, 30 May 2023). In addition, younger adults tend to be more risk tolerant – they have a greater willingness to start new businesses or invest in risky assets – a crucial part of the process of innovation and capital formation.
Shortages of people who can perform certain crucial jobs: these include service jobs such as medical staff, caregivers, police, rescue services and military. These are jobs that are typically difficult for robotics to replicate.
Resistance to change and innovation: Linked to the point about innovation above, older populations may be resistant to new ideas or changes to government policies, even those that may benefit them (e.g. immigration of workers able to do the work that they cannot – more on this topic later).
How can countries tackle this demographic problem?
One solution, which many countries have tried, is to encourage individuals to have more children. From Hungary to France and Russia, many countries have tried a range of measures, including tax incentives, to increase the fertility rate, with little impact so far.
In China, local governments in key industrial cities have undertaken measures such as one-off subsidies for having children and increasing paid maternity and paternity leave. Others offer incentives for bearing children at a young and even paying for fertility treatments (‘Five ways China’s trying to get people to have more babies’, Business Insider 5 October 2023).
Meanwhile, according to the Financial Times, South Korean construction group Booyoung recently said it was offering workers a $75,000 bonus for each baby they produce.
To date, these policies have had limited impact, as the factors that have driven people to choose to have fewer children (see above) have proven to be more compelling than the incentives offered to have more children.
Another way for countries to tackle the problem is to encourage immigration. This has proven to be an effective tool for developed countries in Europe, North America and Australasia in maintaining a vibrant and innovative workforce.
It’s not a solution that’s without pitfalls, however. As noted above, attitudes in many leading developed economies have hardened towards immigration, even in those countries where immigration seems the obvious solution for labour shortages in key areas.
Moreover, it may not be a long-term solution considering that the countries with faster-growing populations are likely to see their fertility and growth rates fall considerably as well.
Embracing a new (but older) world
It’s not all bad news. We’ve highlighted above some of the disadvantages of an aging global population, but there are benefits too. Countries with an older age profile tend to have less violent crime and are less likely to go to war – armies after all need large numbers of young people to do the fighting. Looking beyond our currently troubled times, with the war in Ukraine and the threat of escalation in other parts of the world, one hopes that countries with older population profiles (such as China) will increasingly lose the appetite to settle their differences through armed conflict.
Moreover, as science improves and we look forward to increased lifespans, we can also hope to see further innovations that help us to maintain our vitality as we live longer. Countries will increasingly look to raise their retirement age, not just because they need more workers to continue contributing to pension schemes and taxes, but also because people’s capacity to be productive (and innovative) at an older age will increase, thanks to improvements in medical technologies and healthier lifestyles.
We can also expect artificial intelligence (AI) and robotics to do some of the heavy lifting for us (both physically and figuratively). Already, big data and algorithmic methods are helping to speed up the development of drugs, vaccines and therapies, and can also help in other ways that improve our lives.
It’s still a braver, if older, new world out there if we are prepared to embrace it.
Further reading:
- https://en.wikipedia.org/wiki/Population_decline
- https://en.wikipedia.org/wiki/Demographic_transition
- https://www.reuters.com/world/china/chinas-population-drops-2nd-year-raises-long-term-growth-concerns-2024-01-17/
- https://en.wikipedia.org/wiki/List_of_countries_by_total_fertility_rate
- https://www.businessinsider.com/china-population-demographics-birthrate-fertility-subsidies-incentives-ivf-betrothal-gift-2023-10
*Malthusian refers to the theory espoused by John Malthus that population tends to increase at a faster rate than its means of subsistence and that unless it is checked by moral restraint or disaster (disease, famine, or war) widespread poverty and degradation will inevitably result (source: Merriam Webster).
Browse further in