Working-age population on the decline

Source: The post is based on the article “Working-age population on the decline” published in the Livemint on 2nd January 2022.

Syllabus: GS 1 – Population and associated issues.

Relevance: About the declining working-age population.

News: In the majority of the developed countries working-age population is on the decline.

About the declining working-age population in major economies

According to the UN’s World Population Prospects 2022 (WPP2022) report, the global fertility rate, which stood at 2.3 overall in 2021, will hit the demographic tipping point of 2.1 by 2050. This is owing to a globally synchronized decline in birth rates, including in Africa and Latin America.

The report also pointed out that worldwide, persons aged 65 or over outnumbered children under five for the first time in 2018. By the middle of this century, there will be twice as many senior citizens as people under five, and around as many as the total number of people under 12.

Fertility rates have dropped below the replacement level in all eurozone countries, and they are strikingly low in Hong Kong, Macao, Singapore, South Korea, and Taiwan—the five wealthiest East Asian economies, omitting China.

At 0.81 and 1.38, respectively, South Korea and Hong Kong’s 2021 fertility rates are among the lowest in the world. The US fertility rate has more than halved over since 1960, falling from 3.7 to 1.66 in 2021.

About the declining working-age population in China and India

The situation of India: An emerging-market powerhouse like India is experiencing a population decline. For instance, India recorded fertility rates of 2.03 in 2021 and 2.05 the year before. This is the first time the country had fallen below the replacement rate.

The situation in China: The Chinese government ended its 35-year-old one-child policy in 2016. However, China’s fertility rate stood at just 1.16 in 2021, down from as high as 6.3 as recently as 1968.

Today, every 100 working-age Chinese need to support 20 retirees. If trends continue, by the turn of the next century, every 100 workers will have to support 120 retirees.

What will be the impact of the declining working-age population?

a) High-income economies will face increased pension and healthcare costs, b) The absence of more immigration will lower household consumption and economic growth, c) Historically, per capita output growth has accounted for around half of average annual world economic growth, with the other half coming from population growth. The declining working-age population will upset this balance, d) Many countries may adopt aggressively pro-natalist policies.

Why do population incentivising policies will not stop the declining working-age population?

According to Nobel laureate economist Gary Becker, the demand for children responds to changes in the price of the “marginal child”. Such policies tend to emphasize financial incentives, such as paid maternity leave, “bonuses” for couples that have children, monthly grants for mothers who take time off work to raise a third child, and personal tax deductions to cover childcare expenses.

But these inducements have not proven especially effective. For instance, despite France’s population incentivising policies, its fertility rate stood at just 1.83 in 2021.

How nations can overcome the declining working-age population?

International migration from low-income, high-fertility countries to those with higher average incomes and lower birth rates has helped shield the declining working-age population.

International migration has helped high-income countries sustain economic growth and ease the burden of supporting their growing elderly populations, including by keeping state pensions on a sustainable path.

So, the countries need to recognize the mutually beneficial relationship that exists between low- and high-fertility countries.

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