Ageing populations and declining birth rates: are they really such a catastrophe?

Longer lives, coupled with a trend for richer countries to produce fewer children, has led to panic. But are these really things we should be worrying about?

Any child born in the UK today has a good chance of living until 100 – a prospect that inspires alarm among some economists and politicians. By 2030, one in six people will be aged 60 or over, rising to one in five by 2050, predicts the World Health Organisation.

An ageing population brings a surge in health costs, lower tax revenues and places unreasonable demands on a dwindling pool of workers – or so a widely shared narrative goes. It’s a commonly voiced fear that shrinking populations are on their way and will bring huge problems.

This is largely bunkum. Globally, the population is projected to rise to 10 billion by 2050, according to UN estimates, reaching 11 billion by 2100. This exacerbates environmental problems and will accelerate climate change. Framing both ageing populations and slowing population growth as a crisis of fertility is a mistake, both for an overcrowded island and an overpopulated world.

Nor is an older and possibly shrinking population the economic and social catastrophe that some forecasters fear. In countries such as the UK, where the total population may gently decline as it ages, both the economy and living standards could emerge healthier.

Longer lives and fewer children

Consider why a country grows older. One reason is that people are living longer, although this of course will not shrink the population – quite the reverse. But if individuals continue to choose fewer children – currently well below two in richer countries – then the rate of population growth will dwindle, flatten, or even turn negative as the population ages. A structure of a gently falling and ageing population is plausible for many richer countries – the UK could be one of them.

Why does an older, smaller population pose fewer economic risks than we’ve been led to believe? Older people are more likely to own savings, meaning that the ratio of capital per head is unlikely to dip much, and may even increase.

A smaller population means less pressure on housing, infrastructure and services, and the environment

And thanks to the changing nature of work, we could continue to be productive for longer. Today, jobs in developed economies are seldom physically demanding. Whereas once running a farm demanded the hard toil of dozens of women and men from dawn till dusk, for instance, now only a handful of people are needed given the enormous effectiveness of modern machines. Technological advances mean that being 60 today is not the 60 of a century or even 50 years ago. That we choose to retire and spend decades at leisure is proof of wealth and success. But to frame the problem as a shortage of labour is harking back to another era.

An economist’s view of declining fertility should also be less gloomy. Encouraging changes are behind the decision to have fewer children: better education, higher standards of living, improved career prospects for women. These are undeniably positive and should continue.

The benefits of a smaller population

By 2072, the UK’s population could be 1.3 million lower than today, according to Office for Budget Responsibility scenarios, if the scale of immigration over that period is lower than in recent years – a situation that might ultimately arise in the wake of the UK’s decision to leave the European Union. Fertility rates have also fallen faster than expected. These are gradual rather than dramatic changes that need not harm average standards of living.

One implication might be that that amount of the capital stock per worker – a definition in the broadest sense which includes national assets such as roads and infrastructure – will increase. In other words, there may be fewer people, but they may be relatively better off. A smaller population means less pressure on housing, infrastructure and services, and the environment.

While tax revenues may decrease because of lower earnings, the ratio of savings to GDP would likely remain healthy as older people tend to have more investments and nest eggs.

Framing both ageing populations and slowing population growth as a crisis of fertility is a mistake

An older population will place undoubted pressure on health spending and revenues, however this will in part be offset by lower spending on young people’s education. But governments will be obliged to adjust taxation and spending to meet demands of a changing demographic. Policies on pensions, employment law, childcare and benefits must change in the future to accommodate different needs.

When commentators talk about tackling low birth rates, Japan is often cited as the worst case scenario of an ageing and shrinking population. Yet the predicted economic and social disaster has not materialised – old people are not generally living on the streets in poverty. Incentivising citizens to have more children is not obviously a wise policy in part because the global population looks set to continue growing fast for decades to come. Ultimately, fewer people are better for the planet – and won’t hurt the economy.

 This article draws on findings from "Macroeconomic Impacts of Changes in Life Expectancy and Fertility" by David Miles (Imperial College London).