The Silent Population Implosion

#31 - A Closer Look at Falling Birthrates

In case you prefer to read this post in Italian check out the translations ChatGPT wrote for me.

Hello friends! I hope you’re having a great week!

The idea from this post comes from a tweet I saved weeks ago, the tweet went very viral in my feed as Elon Musk was talking about Italy (my twitter cones converged, tech and Italy):

I must confess that although I had frequently come across discussions on the birthrate crisis, I harbored a diminishing bias towards the topic due to my upbringing in an environment where the narrative of a booming human population was constantly reiterated. The emphasis was often placed on the rapid growth in developing countries, and the impending challenge of accommodating "10 Billion humans" was presented as a significant concern for Earth and the climate. This bias made it difficult for me to fully grasp the alarmist voices highlighting a diminishing population and… that’s why I did some research and decided to write this post!

The Global Decline in Fertility Rates

In recent years, a significant global issue has emerged that is not often discussed in mainstream media: the dramatic decline in birthrates. This phenomenon is not confined to a single country or region; it is a worldwide concern that has far-reaching implications for our future.

The fertility rate, a measure of the average number of children a woman gives birth to, is plummeting globally. This isn't due to the factors that might immediately spring to mind, such as declining sperm counts or other fertility issues. Instead, it's driven by societal changes: more women are pursuing education and careers, and access to contraception has improved. As a result, women are choosing to have fewer children. In many ways, this decline in fertility rates can be seen as a success story, a testament to the progress we've made in gender equality and reproductive health!

However, the scale of the decline is truly "jaw-dropping," to borrow a phrase from Professor Christopher Murray. Let's consider a few examples. Japan's population is projected to fall from a peak of 128 million in 2017 to less than 53 million by the end of the century. Italy, too, is expected to experience a dramatic population crash, from 61 million to 28 million over the same timeframe. These are just two of the 23 countries, including Spain, Portugal, Thailand, and South Korea, expected to see their population more than halve.

Even China, currently the most populous nation in the world, is not immune. Its population is expected to peak at 1.4 billion in four years' time before nearly halving to 732 million by 2100. As a result, India is set to take its place as the world's most populous country.

To maintain a stable population size, the fertility rate needs to be 2.1. This figure accounts for the fact that, even with the best healthcare, not all children survive to adulthood, and babies are slightly more likely to be male. Countries with higher childhood mortality also need a higher fertility rate.

But why is this a big deal? Why should we be concerned about a declining population?

At first glance, you might think that a smaller population could be beneficial for the environment. After all, fewer people would mean reduced carbon emissions and less deforestation for farmland. However, this perspective overlooks a critical factor: the inverted age structure that results from declining birthrates.

An inverted age structure means there are more old people than young people in the population. This demographic shift has uniformly negative consequences. For instance, an aging population increases the dependency ratio, which is the number of elderly people relying on the working-age population for support. As the number of retirees grows and the number of workers shrinks, social welfare systems can become strained. There may be fewer workers to support the healthcare and pension costs of the growing elderly population.

Moreover, a declining birthrate can also impact economic growth. A shrinking workforce can lead to labor shortages, and overall productivity might decline. With fewer consumers, demand for goods and services can decrease, further impacting the economy.

Finally, a smaller working-age population can potentially stifle innovation. Fewer individuals contributing to the development of new ideas, technologies, and businesses can slow progress and limit a country's ability to compete on the global stage.

The Birthrate Crisis in Italy and Spain

As I was investigating the global birthrate crisis, I naturally got very curious about how the trends looked like in Italy and Spain (the countries I know better) and actually the Italian National Institute of Statistics (ISTAT) has sounded the alarm bell on this issue very recently. The fertility rate in Italy is well below the replacement level of 2.1, indicating a shrinking population. Spain is in a similar situation, with its fertility rate also significantly below the replacement level.

I started pulling some data that I believe are relevant to form an opinion on why some countries are performing worse vs others and trying to define some hypoteses on why Italy and Spain are doing so much worse than rest of EU for instance.

In commenting the picture on top of this section ISTAT reports “This decrease is due only in part to the spontaneous or induced decision by couples to not have children. In reality, the causes weigh heavily on both the dimensional decrease and the progressive aging of the female population in ages conventionally considered reproductive (from 15 to 49 years old). If during 2022 procreation had occurred with the same intensity and the same schedule as in 2019, the drop in births would have been about 22,000 units, therefore entirely attributable to the reduction and aging of the female population of childbearing age. The remaining decrease, of about 5,000 births, would instead be caused by the actual decrease in reproductive levels”. The problem is therefore not so much that couples at same age level have less kids, but rather that we start having kids later (and therefore the “fertility window” closes with average couples having less kids).

If you look at the first column of the table below Italy and Spain look REALLY concerning, the population shrinking is massive (btw “Fertility rate” measures the average number of children per each adult woman). The last point is something I supposed had a larger role, and data (caveat: these are averages, and should be taken as such!) seem to prove the point:

When thinking about the causes of this fertility gap among the EU largest countries I noted some potential causes:

1. Family-Friendly Policies: France and the UK have implemented a range of policies that support families and working parents. These policies include paid parental leave, affordable childcare services, and financial incentives for having children, such as child benefits and tax deductions. Such measures can make it more feasible for couples to have children without facing significant financial burdens. The same applies to Germany.

2. Gender Equality: Both France and the UK have made strides in promoting gender equality in recent years. Greater gender equality, particularly in the labor market, can encourage higher fertility rates as women are more likely to balance work and family life. In contrast, countries like Italy and Spain have traditionally had more rigid gender roles, which can make it challenging for women to pursue careers while raising children.

3. Economic Stability: The economic climate plays a significant role in influencing fertility rates. France and the UK have relatively stable economies, which can provide a more favorable environment for couples to consider having children. On the other hand, Italy and Spain have faced economic challenges, including high youth unemployment rates, which can make starting a family less appealing due to financial concerns.

4. Sociocultural Factors: Cultural attitudes towards family formation and childbearing can differ significantly between countries. France and the UK may have more flexible social norms that enable couples to feel comfortable having children outside of traditional family structures. In contrast, Italy and Spain have historically placed a higher emphasis on traditional family values, which can discourage childbearing in non-traditional circumstances.

5. Immigration: Immigration can also impact a country's fertility rate, as immigrants often have different fertility patterns than native-born populations. In the case of the UK, immigration has contributed to the country's higher fertility rate. France, too, has benefited from the higher fertility rates of immigrant populations.

Immigration was actually one of the key hypoteses I started from to explain the gap among EU countries: I tried to see whether the higher fertility was somehow driven by a higher share of immigrant women that for a series of factors tend to have more kids as native women (3rd and 4th column of the table). This is certainly the case for Italy when comparing vs the UK for instance: foreign-born mothers account for 29% of UK births while only 14% of IT. And this is entirely due to the lower % of immigrants in Italy vs UK (since the difference in fertility rate between native and immigrant women is exactly the same in IT and UK).

This is however less true for Spain, where the immigrant population is at a similar level vs UK and France, but with a much lower delta between native and immigrant women’s fertility. When looking deeper into this, the main driver seems to be the mix of culture and country of origin between the countries (the UK and France have a higher share of immigrants from Africa, who have more kids in average, while Spain relies more on LatAm immigration where the fertility rate is similar to EU).

Immigration plays a huge role in the birth-rate of countries, and since this is (as we mentioned above) a huge problem, we should focus on fostering immigration, helping immigrant families integrate and have kids which in turn will help immigration countries’ future.

A final point on the causes is the share of artificial fertility aids, such as in vitro fertilization (IVF), that can help individuals and couples overcome fertility challenges and increase their chances of having children. However, at a country statistics level the impact of these aids on a country's overall fertility rate is likely to be limited, as their use is relatively low and restricted to a small subset of the population. In the about 1.5% of live births in 2018 were attributed to Assisted Reproductive Technology (ART), which includes IVF and other fertility treatments. However, this varies widely across member states, with ART accounting for less than 0.5% of live births in some countries and over 4% in others. Interestingly for instance ART accounted for 5.3% of Spain’s births, while only 2.6% in Italy and 3.3% in the UK, or 2.2% in France. Most of this difference is obviously driven by the policies for the access to these solutions.

What policies have worked in other geographies?

Several countries have implemented policies that have successfully boosted their fertility rates or mitigated some of the potential negative consequences of low birth rates. Some of these fruitful policies include:

1. Family-friendly policies: In France, a combination of generous parental leave, subsidized childcare, and family allowances has helped maintain relatively high fertility rates. These policies have made it easier for parents to balance work and family life, encouraging them to have more children.

2. Pro-natalist policies: In response to low fertility rates, some countries like Singapore and Russia have implemented pro-natalist policies that provide financial incentives for having more children. These measures may include cash grants, tax breaks, and housing subsidies for families with multiple children.

3. Work-life balance: Countries like Sweden and Denmark have focused on promoting work-life balance through flexible working hours, generous parental leave policies, and affordable childcare. These initiatives support both men and women in sharing caregiving responsibilities, which can help improve fertility rates.

4. Immigration: Countries like Canada and Australia have adopted policies that encourage skilled immigration to boost their workforce and offset the impacts of low birth rates.

5. Elderly care and pension system reforms: Some countries have implemented measures to address the challenges posed by an aging population. For instance, Japan has focused on providing comprehensive elderly care services, including community-based care and long-term care insurance.

6. Education and female empowerment: Investing in education, particularly for women, has been shown to contribute positively to fertility rates. South Korea, for instance, has focused on improving gender equality, including promoting female labor force participation, which can help boost fertility rates by enabling women to balance career and family life.

While there is no one-size-fits-all approach to reversing low birth rates, these examples demonstrate that a combination of policies targeting various aspects of family life, work-life balance, and social welfare can have a positive impact on fertility rates and help address the challenges posed by an aging population.

The Future Implications of the Birthrate Crisis

As we look towards the future, the implications of the birthrate crisis become increasingly significant. A world with a significantly smaller population presents both challenges and opportunities that we must prepare for.

“You might think this is great for the environment. A smaller population would reduce carbon emissions as well as deforestation for farmland. "That would be true except for the inverted age structure (more old people than young people) and all the uniformly negative consequences of an inverted age structure," says Prof Murray.

The most immediate challenge is managing the demographic shift towards an aging population. As we've discussed, this shift increases the dependency ratio and places a greater burden on social welfare systems. To address this, we need to rethink our approach to healthcare and retirement, focusing on sustainability and efficiency. Technological innovations, such as telemedicine and AI, could play a crucial role in this regard.

The economic implications of a smaller population are also significant. With a shrinking workforce, we may face labor shortages in certain sectors, particularly those that rely on physical labor. On the other hand, a smaller population could foster increased automation, leading to productivity gains and potentially offsetting some of the economic impacts of a declining birthrate.

From an environmental perspective, a smaller population could lead to reduced carbon emissions and less pressure on natural resources. However, this benefit is somewhat offset by the increased per capita resource consumption that typically accompanies economic development.

Finally, we must consider the cultural and societal implications of a smaller population. As the birthrate declines, our societies may become less diverse and dynamic. The loss of cultural heritage and the potential for social stagnation are real concerns that we must address.

At the end of this very small and partial research I admit that I changed my mind, I had not fully appreciated how relevant this topic is for our societies and probably I was not paying enough attention. My conclusion is that we all can act on this issue, as I reflected on this most of the causes and potential solutions are indeed policies and the best thing we can do to solve the crisis is to vote and ensure the topic is high in the agenda of decision makers!

I wish you all a fantastic weekend!

Giovanni