Is there a solution to the shrinking population? Expert: this is the deciding factor

It is global in nature. Even in the United States, a country that has long been considered demographically stable, the birth rate per woman is now below 2.1 – the value necessary to maintain the population. About two-thirds of the world's population lives in countries where the rate is below replacement level.

The United Nations predicts that the world's population will peak this century and then begin to decline. After two centuries of economic growth, we are approaching a world in which more and more societies are aging and shrinking.

Pragmatic approach

The prospects seem terrifying and easy to scare. – Low birth rates mean the end of our civilization – thunders, for example, Elon Musk, who has a dozen or so children himself. Reactions to current birth statistics often follow a familiar pattern. Commentators warn of a collapse of the pension system, companies of a shortage of qualified employees, and politicians of a demographic decline. Not to mention those who worry that the “wrong” people are having children. However, such alarmist voices do not fully reflect the situation.

There is a growing belief among demographers and economists that panic about falling birth rates is misleading. Falling birth rates are also the result of positive changes: growing prosperity, better educated society, greater independence of women who can shape their own lives, and longer and healthier lives. Modern societies have freed individuals from the need to have many children in order to provide security in old age.

Experts like Andrew Scott are not naive, but they call for pragmatism. A shrinking population only becomes a real problem when the decline is as dramatic as in Chinawhich, according to the UN, will lose about half of their population by the end of the century. The key question, therefore, is not whether aging societies inevitably fall into poverty, but how to prevent it.

This is a serious challenge that requires political courage, changing the way institutions operate and implementing reforms that may be painful. Hiding this would be downplaying the problem. However, apocalyptic scenarios waste time that societies still have to take action.

These require saying goodbye to false hopes. Governments that want to increase birth rates with money are usually not very successful. “It's very difficult to really influence the birth rate,” says Klaus Prettner, a professor at the Vienna University of Economics. – It's very expensive, and the birth rate usually has almost no response to it anyway.

Good examples and solutions

South Korea has invested over $200 billion over the years. (PLN 730 billion) in various family programs, and its fertility rate was recently 0.8, which is the lowest value in the world. Hungary under Viktor Orban also spent huge sums on such programs. Fertility in this country temporarily increased, but the trend could not be permanently reversed.

A better example is Japan, which has maintained its prosperity despite a rapidly aging population. After taking purchasing power into account, the country has maintained its standard of living. However, nominal economic output per capita, measured in dollars, has fallen significantly, and public debt remains at record levels. Japan is therefore not a model of success, but proof that adaptation can at least buy some time.

If you look at gross domestic product per capita, Japan has done relatively well, says economist Scott. One reason for this is that the country invested early in automation and kept older people in work longer. This is the deciding factor – he adds.

He even talks about a “longevity dividend” – the gain from a long life. He believes that older people who stay healthy longer contribute to overall well-being rather than burdening the system. The data supports this view. Research shows that older people today are much more productive than previous generations of the same age. This gives aging societies valuable time to adapt to demographic changes.

Another factor is technology. Where there is a labor shortage, companies are forced to invest in machinery. That's why Germany is among the countries with the highest robot density in the world. There may be too much hope currently placed on artificial intelligence, the next great transversal technology – but its productivity potential is nonetheless significant. So far, it is growing much faster than its population is shrinking. Artificial intelligence and other technologies are not a panacea, but they can make employees more productive and perhaps even more innovative. Anything less would be a sharp break with the experience of modern times.

Controversial measures

What is decisive is not the number of people, but their productivity. In Western Europe, economic productivity per capita has been growing for decades – faster than population. What determines the material standard of living is not the absolute size of the economy, but economic productivity per capita. In Germany, this prosperity is much higher today than in the 1990s, even though each employee today, on average, works much less than then.

However, the truth is that Germany is seriously behind in many areas. Politicians postponed reforms for a long time and additionally burdened the pension system by suspending the stability index again. Meanwhile, the older society becomes, the more difficult it is to carry out reforms.

The most important factor is the labor force participation rate. Older people and women in this country continue to work less than they otherwise could, even though many of them remain in good health well into their 70s. Instead of taking advantage of this, Germany subsidizes early retirement.

Other countries show that it is possible to do things differently. In Sweden, for example, people working in the years before the statutory retirement age pay much lower taxes on their income. As a result, more older people work longer hours. Research shows that what the government loses in tax cuts is more than made up for by lower pension payments because people simply work longer. Linking the retirement age to life expectancy is considered by economists to be a particularly effective solution, but is controversial politically.

The Viennese economist Prettner calculated what exactly this would mean. A person who is 50 years old today, if partially related to life expectancy, would probably have to work two to three years longer than previously planned. From Prettner's point of view, it is important that this solution is fair, communicated in advance, supported by enterprises and supported by investments in employee health.

Time needed

Then there is the issue of education. It is not enough that many people study formally, since according to the latest PISA assessment, about a quarter of students finish compulsory education without being able to read with understanding. “It's like declaring bankruptcy for a wealthy society,” Prettner says. Aging societies must not lose sight of young people.

Karim Jebari from the Swedish Institute for Future Research believes that the state should support families where necessary. This applies especially to large cities, where housing costs have skyrocketed and young couples with children cannot find apartments. Immigration may also alleviate demographic pressure in the medium term. However, this is not a sustainable solution, as birth rates in many countries of origin are falling and are already below replacement level. “However, as a buffer, migration provides valuable time for reforms,” says Jebari.

Germany still has demographics on its side – children born today will not reach retirement age until the end of the century. And all stats beyond the next age change are only of limited value. Demographic changes work slowly. — It takes 20 years before a child is born to enter the labor market and 65 to 67 years before he or she retires. We have time, says London economist Scott. However, it must be used appropriately.