What governments should worry about

Global Demographic Decline

The Chinese government has recently announced moving to a three-child policy from its current two-child regime which had earlier replaced its single-child policy that was in force since the 1980s.

This is a reflection of a worldwide phenomenon known as ‘demographic decline’, with very significant consequences. Demographers predict that the global population may go on a path of sustained decline by the second half of this century, if not earlier.

The 20th century saw the greatest rate of growth of population in recorded human history. World population increased from 1.6 billion in 1900 to about 6 billion in 2000, due to huge improvements in medical and sanitation facilities, leading to lower death rate, especially among infants.

Population, instead of growing (as was the norm in the 20th century), has started to decline in many countries in Europe, North America, Australia and in some countries in Asia, like Japan and South Korea. In addition, it is showing signs of decline in the near future in many more countries, including some of the most populous ones. Unlike China, India does not have a coercive State-guided population policy (except for a short period under Emergency). Yet, the overall birth-rate in India as measured by TFR or Total Fertility Rate (average number of children per woman of child-bearing age) is steadily declining towards the replacement rate of 2.1. Incidentally, in 2019, TFR was 2.2 for India, 1.7 for China, 2.0 for Bangladesh, 3.5 for Pakistan, 2.3 for Indonesia, 2.1 for Iran, 2.0 for Malaysia, 2.1 for Mexico, 1.7 for Brazil, 1.5 for Russia, and 4.6 for Sub-Saharan Africa.

A number of factors are contributing to this global trend.

Better education, greater prosperity and more employment opportunities for women have induced young couples to opt for small families consisting of one child or two children at most. The break-up of joint families has forced parents to rely on child-care centres, instead of stay-at-home grandparents, to take care of kids. This has raised the cost and worries of child-rearing while the benefits of having more children have gone down as children can no longer be relied upon to look after their parents in old age. High cost of living -- specially skyrocketing housing costs in big cities and costs of college education -- and job insecurity in a world of rapid technological progress are additional factors contributing to young people choosing to stay single, marry late or delay pregnancy.

This trend has consequences — both positive and negative. On the positive side, a falling population means greater availability of resources per head, slowing down of the destructive impact of climate change, less pressure of household duties and more job opportunities for women and hence greater gender equality. On the other hand, the inversion of the population pyramid, with a rising fraction of retired people and falling proportion of working-age population, implies a rise in the ‘dependency ratio’. This has already caused the pension systems of many countries to run out of money and rising fiscal burden to meet pension commitments. As retirees live longer, they need to save more in their working life to fend for themselves after retirement. Consequently, it is becoming increasingly difficult to sustain consumption demand to support the growth rate of economies. Japan (with TFR 1.36 in 2019), caught in recessionary conditions for decades, is considered a typical example of this problem. In South Korea, the country with the lowest TFR, 0.92 in 2019, lower-tier universities are not finding students and are being forced to merge to survive.

In India, the falling overall birth rate is also associated with a decline in the quality of population. Birth rate is declining particularly in the more educated and affluent families who can afford to give better education and quality of life to their children. As a result, an increasing fraction of the working-age population is becoming less educated, turning our so-called ‘demographic dividend’ into a curse rather than a blessing. This falling quality of population, rather than the decline in the number of people, should be a matter of big policy concern in India, which underlines the urgent need to devote more resources to improving the quality and affordability of education and health infrastructure.

A similar problem is arising for the global economy as a whole. In 2019, TFR was 4.5 for the Low Income Countries (World Bank classification), 2.7 for Lower Middle Income Countries, 1.9 for Upper Middle Income Countries and 1.6 for High Income Countries. So, population is going down in countries that can afford to give better quality of life to their children, whereas it is rising in countries (like Sub-Saharan African countries) least able to provide quality life to their offspring. That way, it would further widen the inequality between countries with widely divergent per capita incomes.

How are countries adapting to these demographic changes? Several countries are providing incentives to people to have more children, in the form of liberal child-care allowances, tax concessions, free child-care facilities, paid parental leave for both parents for a longer period, and more subsidies for school and college education, including more scholarships, free laptops and iPhones. Some countries (like the US and Germany) are going for more immigration of workers and raising the retirement age to cope with the shortage of manpower. To take care of the needs of ageing populations, more resources are being diverted to old-age homes and geriatric care, including conversion of empty schools into old-age facilities.

However, so far, these policy initiatives have not met with much success in reversing the trend of declining populations in the developed countries. So, it seems that the world is entering a phase of declining population in the more developed parts and a rising population, along with worsening quality of the workforce, in the least developed regions.

(The writer is a former professor of economics at IIM Calcutta and Cornell University, USA)