11.29.07
Demography is Destiny
This is a piece John Bruton wrote for a newsletter he sends out weekly. Some interesting comments on demography in the EU vs the US.
DEMOGRAPHY IS DESTINY : Looking over the Horizon
Questions I am often asked here in the United States include
- “Why are Europeans having fewer children?”
- “What does that mean for the future of European civilization?
- “Will persistent low birth rates eventually mean that Europe’s public finances will be overwhelmed by an elderly pensioner population depending on a diminishing working age population?”
These are questions that Europeans themselves are thinking about. And it is with a concern that is not confined to Europe. 44 % of the world’s population now live in countries where birth rates are below replacement level.
The United States is a special case. Between 2000 and 2025, the median age in the United States is projected to rise by three years. In the same period, the median age in the EU 15 (the 15 pre-2004 EU members) is expected to increase by seven years!
The European Commission has estimated that, by 2050, if present birth rate trends continue (and that is, of course, not inevitable), the number of highly productive young adults (25 to 39 years) would fall by 25 %, while in contrast the number of frail elderly (over 80) would increase by 171 %.
Nicholas Eberstadt of the American Enterprise Institute has estimated that by 2025, whereas the number of military-age men in the U.S. will rise by 23 %, it will decline by 23 % in the EU, and decline by nearly 50 % in the Russian Federation. Thanks to the one child policy, similar trends are already evident in China. There are now 28 million fewer people aged between 18 and 23 in China than there were in 1990.
Birth rates have been falling for a long time, but not at the same speed. Generally it seems that birth rates has fallen fastest recently in countries which started with a relatively high rate. From 1990 to 2005, the birth rate has dropped by 10 per 1000 in Tunisia, by more than 3 per thousand in Australia, Austria, the Czech Republic, Germany, and Poland, but by only 0.6 per thousand in Ireland, 0.7 in Greece, 0.7 in Japan, and 1.6 in France. In the same period, the U.S. birth rate dropped by 2.5 per thousand.
Last year the European Commission published a Communication (SEC(2006)1245) dealing with this subject. It said an opinion poll had shown that, on average, Europeans would like to have about 2.3 children, but, on average, they were only having 1.5. So what are the obstacles preventing Europeans having the number of children they would really like to have?
The European Commission paper is right to say that “the desire to have a child (or not) is a private matter”, but it is also right when it says that “public policies have to develop action lines that offer a better environment for young parents, which reconcile professional, private and family life”.
How do public policies affect the decision to start a family?
First, one of the reasons for delaying the decision to have a child is the fact that young people in Europe are acquiring financial autonomy at a later age than in the past. Time spent in education is getting longer and longer. Employers are artificially demanding higher and higher levels of qualification for jobs, in order to reduce the number of people they need to interview. So, to please employers, some young people may stay too long in college. Of course, there is also pressure to get more training because of reduced employment in sectors that do not require significant training.
Secondly, people’s expectations of the size of house they would need to start a family have increased (by about 40% in size by one estimate). The cost of a house relative to average income has also gone up in many countries. The present downward movement in house prices may help young people in those countries to get their feet on the first rung of the housing ladder.
Thirdly, increased “flexibility” in the labour market may not help. Those with insecure job prospects are less likely to want to start a family. But the success of “flexicurity” in some smaller EU economies suggests that it is possible to combine flexible markets with economic security.
Fourthly, the long-term cost of a decision to have a child is also a big issue. This goes far beyond the cost of childcare during infancy. One American estimate I saw said that the life time cost to parents of having a child (excluding the cost of college) comes to $ 200,000. That cost falls exclusively on the parents of the child although, when the child grows up and goes to work, the taxes and pension contributions the adult child pays will be used to pay for the pensions and healthcare of all retired people, including those who incurred no child rearing costs. As economists might put it, parents who have children are producing a public good, at a large private cost.
Fifthly, instability of marriages also impacts on the decision people make to have a child. If the prevailing norms in society point towards unstable marriages, couples may not feel they have enough long-term emotional and financial security to start a family.
Sixthly, if they do have a child, and then either the mother or father opts out of paid work (part time, temporarily or full time) to look after the child at home, this will result not only in a lower family income, but also in a lower eventual family pension entitlement on retirement.
All these are hard questions of economic and social equity.
Low birth rates, and the factors that cause them, feed directly into the debate about immigration. There is a lot of misplaced alarm about immigration in Western societies.
The truth is that the present high levels of immigration to both the EU and the US are probably a temporary phenomenon. Birth rates are falling so fast in many of the countries from which our immigrants come that, in a few years, these countries will have no more people to spare.
Between 1980 and 1999 births per woman dropped by 2.6 in the Middle East/North Africa and by 1.5 in Latin America and the Caribbean. Labour will eventually become scarce in those countries and in the developed world.
Wage rates there, and here, will therefore tend to rise.
The present era, in which the relative share of wealth going to owners of capital has risen and the share going to wages has fallen because labour is so plentiful, will then be over. The pressure will be in the other direction. We will return to the conditions which existed in the Post-War era, when employers had to offer all sorts of inducements (like free health insurance!) to get people to work for them.
While all that probably won’t happen for another fifteen years, it does suggest that European Governments are right to try to raise the retirement age now. But raising the pension age on its own is not enough.
Older workers need retraining if they are to extend their working lives : retraining not only in new skills, but also in their perceptions of what they themselves are capable of.
Who is to provide this training? There is a strong argument for saying that Governments are more likely to be able to take the broader interest of society on a matter like this into account, especially as the newly retrained older person may eventually find himself/herself working for a different employer.
MDLN said,
November 29, 2007 at 10:02 pm
Any link to where you can subscribe to the newsletter, Sarah?
Gordon Davies said,
November 29, 2007 at 10:36 pm
So, two positive outcomes:
- the share of added value being taken by capital will fall and the workers will get more;
- the total population of this over-populated world will start to fall without having to resort to war or epedemic.
It should be noted that the grandad (and grandma) boom is only a temporry blip – coming, strangely enough about 60-70 years after the baby-boom!
If only we could also get rid of the ridiculous idea that the way you provide for retired people is to get each one of them to gamble on their investments providing for them. We have to use 10-15% of GDP to finance provision for the retired, why do so in the most ineffective, inequitable way by using individual pension funds.
Final comment – if financial institutions are so in favour of people working longer, how is it that most companies (and the civil service) will off load over 50′s if they get a chance.
Gordon
Paul Browne People and Technology said,
November 30, 2007 at 8:47 am
Sounds like John is gunning for David McWilliams position of being the Irish Economic commentator of choice. Now if he just put the email content out as a blog ….
Seriously, there’s a lot of truth in what he is saying. A large part of the Celtic Tiger can be explained by Demographics (combined with other fortunate circumstances such as EU membership and technology making distance less relevant).
Paul
SK said,
November 30, 2007 at 8:59 am
In the Irish case one of the biggest impediments to increasing the birth rate is the horrific cost of childcare. You can choose to fork over about €1000 a month, or one parent (and we all know which one it usually is) has to forgoe all their income to stay at home.
I have always felt that the government was giving the wring handout to the middle class when they abolished 3rd level fees. They should have introduced universal free or heavily subsidised childcare instead. Then watch the birth rate jump.
Opus_One said,
November 30, 2007 at 9:18 am
Very thought provoking stuff – I wondered as I read it would Enda K ever be able to pen something of that calibre. And if he did would anyone even bother reading it knowing that it came from him.
Gordon Davies said,
November 30, 2007 at 9:40 am
SK,
Why would we want the birth rate to increase? The world does not have enough resources for the present population, let alone any new generation of baby boomers.
The falling birth rate in developed countries is a sophisticated reaction to a long term problem. As such it should be welcomed and encouraged. Measures need to be put in place to accompany the short term problems that will occur during the transistion to a more sustainable situation.
Surely having to live through a period of, sometimes difficult, reajustment, is infinitely preferable to allowing population to outstrip resources, with the inevitable consequences of famine, epidemic and conflict.
Gordon
Tomaltach said,
November 30, 2007 at 10:39 am
Gordon makes a good point about global population versus resources. Malthus was famously wrong about his prediction about the possible numbers that a given country could sustain. Technological advancements wiped away his limits. But given our current understanding of the pressure we are putting on the finite resources of the planet, we can see that, despite his numbers being wrong, he was probably right to warn of the dangers posed by the fact that “the power of population is … superior to the power of the earth to produce subsistence for man.
This brings us back to the great debate about economic growth. Everyone appreciates the great benefits that growth brings. Yet it is clear that at the moment we have a very one dimensional view of growth. Little consideration is given to the kind of growth or its undesireable consequences.
As I said to Michael Taft
I am not arguing that growth in and of itself is a bad thing. It is easy to imagine two countries with the same GDP and the same growth rate in GDP. Yet after 10 years the achievements of one is very different to the other – because of the nature of their value system, their institutions, their power structures, and so on.
I stress the (social and environmental) values here. Because when people criticise growth itself, they are often missing the real target – a criticism of the power structures in society, inequality, individualism, consumerism, and so on. Growth itself doesn’t lie at the root of these other phenomena. There was huge growth between WWII and 1973 in Europe for example. But the hyper-individualisation, insecurity, inequality, and so on became more rampant in the 80s and 90s.
Growth need not even entail using greater resources. We could imagine for example developing smarter technology which allows us to build smaller computers which need less material to built and less energy to run.
Demographics come in here because we crave more absolute growth at almost any cost and it is extremely hard to have absolute growth if the population is declining. But if the population is dropping by say 1% per annum and the absolute growth is -1%, we still have a constant GDP per capita. The dynamics of growth aren’t that simple, but if we accept that the earths resources are limited and that ultimately zero poplulation growth (or small decline) is desireable for sustainability, then were are going to have to adjust our concept of growth (even if that means adjusting our expectations).
Sarah said,
November 30, 2007 at 10:45 am
I’ll contact JB’s office and see about subs. I confess, my mother
is on the mailing list and she forwarded this onto me as she knows I’m interested in population stuff. I published it as I figured it was public and very interesting.
Joe. H. said,
November 30, 2007 at 2:14 pm
An article from The New Yorker which outlines the theory of how a large part of the Celtic Tiger can be explained by Demographics.
The Risk Pool
Dept. of Human Resources
August 28, 2006
What’s behind Ireland’s economic miracle
“In the past two decades, for instance, Ireland has gone from being one of the most economically backward countries in Western Europe to being one of the strongest: its growth rate has been roughly double that of the rest of Europe. There is no shortage of conventional explanations. Ireland joined the European Union. It opened up its markets. It invested well in education and economic infrastructure. It’s a politically stable country with a sophisticated, mobile workforce.
But, as the Harvard economists David Bloom and David Canning suggest in their study of the “Celtic Tiger,” of greater importance may have been a singular demographic fact. In 1979, restrictions on contraception that had been in place since Ireland’s founding were lifted, and the birth rate began to fall.
http://www.gladwell.com/2006/2006_08_28_a_risk.html
SK said,
November 30, 2007 at 2:40 pm
Gordon, I don’t think I have ever met anyone that has taken the view that they won’t have children because of the potential impact on the planet. I would have to take serious issue with the view that “The falling birth rate in developed countries is a sophisticated reaction to a long term problem”
I doubt anything other than an insignificantly small part of the population ever looks at it this way.
As for why we should want to increase the birth rate, we would need to sustain it in the context of the economic discussion (where this one started out
But I think my point also would be that people’s ability to choose whether or not to have any children is being taken from them by the economics of the situation. Many people can’t afford to have one child, let alone teh 2.1 required for population replacement.
Ray said,
November 30, 2007 at 2:53 pm
“I have always felt that the government was giving the wring handout to the middle class when they abolished 3rd level fees. ”
There’s also ‘childcare allowance’ of a thousand a year to the age of 6, plus 1800 a year child benefit.
Gordon Davies said,
November 30, 2007 at 3:46 pm
SK
I would agree that people don’t have children in order to save the planet. However economy and society sometimes work to produce beneficial outcomes. An economist would argue that the birth rate is determined by a host of economic decisions, all linked to the long term economic prospects of each household. Which is why, in developing countries, when a families investisment in their children’s education will improve the families prospects, then family size decreases rapidly. It would seem that European families (Ireland being part of Europe) are deciding that their lolong term prospects are diminished by having one or more children.
Can you give a long term economic argument for sustaining a population level that is not sustainable. Maintaining or increasing population to fund the cost of transitional arrangements (funding the pension “crisis”) is not a valid proposition.
Gordon
Darren Mac an PhrÃora said,
December 1, 2007 at 12:03 am
I got lost in the painful detail of it.
Perhaps I will have another look at it tomorrow.
meehawl said,
December 3, 2007 at 6:14 pm
Euro fertility has tended to be historically lower than other global geographical regions over literally millennial timescales. It’s one of the common correlations for the difference in economic emergence during the early modern era between China/India and Europe. The US birthrate currently resembles a developing nation more than any developed nation. This is probably a consequence of historical factors (genocide of aboriginal population, colonisation by Euro and Asian exiles, etc) causing expansion into new territories. When it fills up it might slow down a little.