Low Natality, Low Growth: The Economic Consequences of Fewer Babies

One more consequence of misguided population control policies

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With the world’s economy still struggling, the March-April edition of the magazine Foreign Affairs had a special section titled: “The World is Flat: Surviving Slow Growth.” Among the essays was one which centered on the demographic causes behind slow growth.
“The Demographics of Stagnation: Why People Matter for Economic Growth,” by Ruchir Sharma, acknowledged the multiplicity of theories that seek to explain why economic growth has not returned to its pre-recession levels.
Sharma, head of Emerging Markets and Global Macro at Morgan Stanley Investment Management, said that while each of the explanations have some merit “experts have largely overlooked what may be the most important factor: the global slowdown in the growth of the labor force.”
Growth in both the labor force and productivity has been in decline for some time and has flattened further in the last decade. Since 2005 the global labor force has grown at just 1.1% annually and is set to grow even slower in coming years in many parts of the world.
“The implications for the world economy are clear: a one-percentage-point decline in the population growth rate will eventually reduce the economic growth rate by roughly a percentage point,” Sharma affirmed.
The decline in the growth of the labor force explains a lot of the disappointing growth rates in recent years, he continued. Moreover, government incentives to increase fertility rates and encourage more adults to enter the labor market only have partial success.

Neo-Malthusian alarmism

“Ultimately, then, the world should brace itself for slower growth and fewer economic standouts,” was his bleak prognosis.
The United Nations forecasts global population to rise to 9.7 billion by 2050 and Sharma noted that neo-Malthusians have warned of the difficulties in feeding such a population or even finding enough jobs to employ the growing numbers.
These fears are misplaced, Sharma argued. The population growth rate is slowing dramatically and an aging population will place less strain on the food supply, given that older people consume up to a third less calories than young people.
Returning to the economic impact he outlined why he considered demographic decline to be “toxic” for the economy and said that the primary threat most countries face is not too many people, but too few young workers.
The demographic shift under way at the moment is the result of changes over the last few decades in both birth and death rates. Already, he pointed out, the majority of population growth is accounted for by the expansion of the numbers of people over 50 years of age and the fastest growing segment of the population is that over the age of 80.
Already nearly half of the world’s population live in one of 83 countries where the fertility rate is below the replacement level of 2.1 children per woman.
To understand the dynamic between population and economic growth Sharma looked at 56 countries which since 1960 have had a sustained growth of at least 6% per decade or more. On average, he said, in those times of growth of the working-age population grew at 2.7%.
The figures suggest that population growth in the workforce of around 2% a year is a good benchmark for economic growth. Countries with slower population growth were unlikely to have sustained high rates of economic expansion.

Fewer workers, lower growth

Going back to 1960, there are 698 decade-long periods for which data on a country’s population growth and GDP growth are available, Sharma explained. In only 38 of these cases did the working-age population shrink. Moreover, the average growth rate in these countries was a bare 1.5%.
In some countries there was low growth in the labor force along with healthy economic growth but in a number of these instances the countries were already relatively wealthy, or were recovering from recession.
According to Sharma over the next five years the working-age population will fall below 2% in all the major emerging economies. In Brazil, India, Indonesia, and Mexico, it is expected to fall to 1.5% or less. While in China, Poland, Russia, and Thailand, the working-age population is expected to shrink.
Of particular concern, Sharma noted, is the situation in China, which has in recent times played a crucial role in world economic growth. In 2015 the growth rate of its working-age population fell below zero for the first time in at least 50 years.
In the United States population growth in the labor force has been much faster than in other advanced economies, but is forecast to grow at only 0.2% a year in the near future. In a number of European countries, as well as Japan it will shrink.
Sharma concluded by saying it is hard to see how the world economy can find enough workers to grow as fast in the future as it has in the recent past. This is just one of the consequences of misguided population control policies implemented in the last few decades.

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Fr. John Flynn

Australia Bachelor of Arts from the University of New South Wales. Licence in Philosophy from the Pontifical Gregorian University. Bachelor of Arts in Theology from the Queen of the Apostles.

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