It is a bias to assume that population drop is bad for the economy, especially in a world where technology permits us to automate ever more jobs.
China’s latest published census which shows that its population has almost stopped growing, brought cautions of severe problems for the country. “Such numbers make grim reading for the party,” reported The Economist. This “could have a disastrous impact on the country,” wrote Huang Wenzheng, a fellow at the Center for China and Globalization in Beijing, in the Financial Times.
But a comment posted on China’s Weibo was more insightful. “The declining fertility rate actually reflects the progress in the thinking of Chinese people – women are no longer a fertility tool.”
China’s fertility rate of 1.3 children per woman in 2020 is well below replacement level, but so, too, are fertility rates in every rich country. Australia’s rate is 1.66, the US rate is 1.64, and in Canada it is 1.47. In all developed economies, fertility rates fell below replacement in the 1970s or 1980s and have stayed there ever since.
When the US rate returned to just above two from 1990 to 2005, some commentators hailed America’s greater dynamism and “social confidence” versus “old Europe.” In fact, the increase was entirely due to immigration, with Hispanic immigrants initially maintaining the higher fertility rates of their less successful countries of origin. Since 2000, the US Hispanic fertility rate has fallen from 2.73 to 1.9, while rates for white people have been well below 2.0 since the 1970s and for black people since around 2000.
Only in poorer countries, concentrated in Africa and the Middle East, are much higher birth rates still observed. In India, all the more prosperous states – such as Maharashtra and Karnataka – have fertility rates below replacement level, with only the poorer states of Bihar and Uttar Pradesh still well above. And while the national rate in 2018 was still 2.2, the Indian National Family Health Survey finds that Indian women would like to have, on average, 1.8 children.
A half-century of evidence suggests that in all prosperous countries where women are well educated and free to choose whether and when to have children, fertility rates fall significantly below replacement levels. If those conditions spread across the world, the global population will eventually decline.
A pervasive conventional bias assumes that population decline must be a bad thing. “China’s falling birth rate threatens economic growth,” opined the Financial Times, while several comments in the Indian press noted approvingly that India’s population would soon overtake China’s. But while absolute economic growth is bound to fall as populations stabilize and then decline, it is income per capita which matters for prosperity and economic opportunity. And if educated women are unwilling to produce babies to make economic nationalists feel good, that is a highly desirable development.
Meanwhile, arguments that stable or falling populations threaten per capita growth are hugely overstated and, in some cases, plain wrong.
True, when populations no longer grow, there are fewer workers per retiree, and health-care costs rise as a percent of GDP. But that is offset by the reduced need for infrastructure and housing investment to support a growing population. China currently invests 25% of GDP each year on pouring concrete to build apartment blocks, roads, and other urban infrastructure, some of which will be of no value as the population declines. By cutting that waste and spending more on health care and high technology, it can continue to flourish economically as the population declines.
Meanwhile, a stable and eventually falling global population would make it easier to cut greenhouse-gas emissions to avoid climate change, and alleviate the pressure that growing populations inevitably place on biodiversity and fragile ecosystems. And contracting workforces create stronger incentives for businesses to automate, while driving up real wages, which, unlike absolute economic growth, are what really matter to ordinary citizens.1
In a world where technology enables us to automate ever more jobs, the far bigger problem is too many potential workers, not too few. China’s population aged 20 to 64 will likely fall by around 20% in the next 30 years, but productivity growth will continue to deliver rising prosperity. India’s population in that age band is currently growing by around ten million per year and will not stabilize until 2050.
But even when the Indian economy grows rapidly, as it did before the COVID-19 crisis, its highly productive “organized sector” of about 80 million workers – those working for registered companies and government bodies on formal contracts – fails to create additional jobs. Growth in the potential workforce simply swells the huge “informal sector” army of unemployed and underemployed people.
True, fertility rates far below replacement level create significant challenges, and China may well be heading in that direction. Many people expected that after the one-child policy was abolished in 2015, China’s fertility rate – then around 1.65 – might increase. But a look at the freely chosen birth rates of ethnic Chinese living in successful economies such as Taiwan (1.07) and Singapore (1.1) always made that doubtful. Other East Asian countries such as Japan (1.38) and Korea (1.09) have similarly low fertility.