Lower birth rates and an aging population can help heal Asian economies

Slowing population growth can have broad benefits for society, including enhancing the many ways that older citizens enrich our communities.

By Jane O’Sullivan and Susann Roth

As the Covid-19 pandemic continues to disrupt people’s livelihoods through a second year, a lot of people are choosing to defer having children. Media stories lament a ‘baby bust‘ and worry that there won’t be enough workers to look after the increasing numbers of elderly. China is taking further measures to encourage parenting.

But the biggest challenge in recovering from the pandemic is not a shortage of workers, but finding enough jobs for those who need them. This is not your ordinary recession – more money is flowing than ever, thanks to economic stimulus. But much of it bypasses the small businesses we are constrained from patronising, and flows inordinately into the coffers of the super-rich. The recovery must stimulate local spending and get people back into jobs. Any trend that tightens the labour market will help.

A surfeit, rather than a shortage, of job-seekers is not a new thing. As the eminent British economist Adair Turner reminds us, “In a world where technology enables us to automate ever more jobs, the far bigger problem is too many potential workers, not too few.” Why then are we so worried about population aging?

Aging populations are the inevitable symptom of our success. Thanks to modern medicine, most people born are able to live long and healthy lives. And contraception helped us avoid having more children than we can support well, in the process curtailing the impoverishment and resource constraints inflicted by population growth. If sustainable prosperity is possible, the population boom of the past 75 years must end. We will have more elderly people than ever before, but most will also be healthier and making a positive contribution to society, whether in paid work or not. The age ratios will find a new stability that still has more potential workers than jobs.

Photo by Jaddy Liu

For those who worry that more elderly means fewer breadwinners to care for them, the experience of OECD countries should give some comfort. Half a dozen countries have had declining proportions of “working age” people (nominally those aged 15 to 64 years) for more than twenty years. They include Denmark, Finland, Germany, Italy, Japan and the Netherlands. None has seen a demonstrable decline in the proportion of people who are employed. Instead, unemployment fell, more women work, and people are retiring later. Labour productivity growth continued unabated. In these countries generally, underemployment is low, job security high, the cost of housing is stable and affordable, and environmental health is improving.

In other words, the labour market did what we would expect it to do. In a tightening labour market, we expect that more people will find stable, salaried jobs that use and develop their skills. We expect that employers will invest in human capital, and in labour-saving technologies that increase the productivity of workers. We expect that exploitative, low-wage work will diminish and income inequalities will lessen. We expect the informal sector to shrink, turning more workers into taxpayers. As a result, people can live healthier lives supported by social protection systems, and better living and working conditions. On these grounds, a tight labour market is very desirable for social development.

The popular narrative of population aging has been very different. The workforce is assumed to shrink in proportion with the working-age share of population – indeed the word “workforce” is regularly used in place of “working-age population”. In these models, no labour market feedbacks are included.

If these narratives are not painting an accurate picture, the policy measures they motivate could be misguided and even counter-productive. In particular, many countries have sought to boost population growth, through higher births or immigration, to dilute the older people in a form of Ponzi scheme. Unfortunately, these measures make little difference to the working-age proportion, and by crowding the labour market, they could lower productivity more than they increase employment.

More importantly, they perpetuate the very high costs of providing infrastructure for expanding populations. For each 1% per annum of population growth rate, around 7% of GDP must be spent just to put in place enough extra houses, roads, hospitals, schools, power stations, sewage works and all other durable items, to allow the new people to enjoy the same level of service as existing people and prevent society going backward. When cities get so large that high-rise apartments, metro tunnels and water recycling are needed, the cost per added person goes up substantially. Crowding of land and other natural resources often adds import-dependence to strained budgets. Big, densely populated cities elevate health risks from poor air quality and hotter heatwaves, as well as creating fertile grounds for pandemics, as we are experiencing during the COVID19 crisis. Of course, building lots of infrastructure also increases countries’ carbon footprints which contributes to climate change.

So, we should acknowledge that slowing population growth provides a dividend through better access to infrastructure and services for less expenditure. This automatically translates into better health and education outcomes, less congestion and higher productivity. Together with the benefits of a tightening labour market, the economic stimulus is multiplied, as the East Asian tiger economies demonstrated.

Population aging goes hand-in-hand with ending population growth. If we see these two as a package, the costs of the former are offset by the savings from the latter – more pensions and nursing homes but less construction and housing debt. The infrastructure dividends begin some decades before the numbers of retirees swell, so it’s easy to take them for granted and omit them from the economic equation, while only seeing the negatives for funding pensions and healthcare. But these dividends are still delivering, even as population growth ends and numbers start to contract. The key is to take a longer term perspective.

One advantage of population aging is that it has drawn attention to old-age poverty, a tragedy which has always been present. Good care at both ends of life should be part of the social contract between generations, provided proudly, not with miserly lamentations. In most Asian countries, the proportions of elderly people are still small. Now is the time for them to roll out universal pension coverage and invest in preventive health care and better living conditions to allow for healthy aging. This spending will create industries around products and services for older people and boost local economies, helping to make the expanding program affordable.

And here is the synergy: new pension and aged care provisions tick all the boxes for efficient economic stimulus. The money is widely distributed and quickly spent within local economies. The pandemic response provides an ideal opportunity to put in place the frameworks we need to adapt to emerging demographic realities.

It’s time to stop worrying about “getting old before getting rich”. A lower proportion of working-age people will not impede getting rich, because it strengthens rather than shrinks the workforce. More consistent and better employment will allow households to save for retirement. Better healthcare means more people will choose and be able to work past 65, without it needing to be legislated. Easing pressures on housing and natural resources will improve community resilience. All these benefits depend on ending population growth sooner rather than later. We should celebrate the benefits of depopulation, and the many ways that older citizens enrich our community life.

 

 

This blog was originally published on the Asian Development Bank blog, on 15 September 2021.

Jane O’Sullivan is the author of Silver tsunami or silver lining? Why we should not fear an ageing population available at: https://population.org.au/discussion-papers/ageing/

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6 thoughts on “Lower birth rates and an aging population can help heal Asian economies

  1. With a population of 17,5 million the annual growth rate in The Netherlands is well above 100.000 people, mainly due to immigration. Among the immigrants are refugees with their families, but first and foremost immigrant workers, blue as well as with collar, and a number of foreign students. This growth puts a high pressure on the housing market; the cost of housing is sharply increasing and practically not affordable for young people. In order to keep labour costs low, many enterprises employ people on short-term contracts. There is a race to the bottom going on with cheap work force from Eastern Europe in horticulture, construction, distribution centres, slaughterhouses and transport. After Covid-19 our economy is booming again.
    This situation of short-term contracts, cheap workforce and unaffordable housing has a negative effect on our TFR, which is to date between 1,6 and 1,7. This means that the possible advantages of low birth rates are strongly counteracted by ongoing immigration.

    1. Most of Western Europe is in that situation. It’s maddening that all the Green parties (as far as I know) are super pro-immigration. It kind of defeats their purpose.

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