Policymakers around the world are hunting for options to counter a looming economic crisis as older populations expand and te pool of workers shrinks. Photo / 123rf
Governments offer a catalogue of creative incentives for childbearing – yet fertility rates just keep dropping.
Politicians in Lestijarvi thought they had the answer to Finland’s demographic woes: each mother of a newborn baby would receive €1000 ($1800) a year for 10 years if they stayed in the Nordic country’s second-smallest municipality.
But more than a decade after they introduced the payments, and over €400,000 ($737,000) poorer, officials were forced to concede defeat: Lestijarvi’s population has shrunk by a fifth since the scheme started.
“It wasn’t worth doing at all,” said Niko Aihio, the town’s former head of education. “The baby boom only lasted one year.”
Policymakers around the world are grappling with the same problems as those in Lestijarvi: no matter what they seem to offer in the way of incentives, people are not having more babies. For the Finnish municipality it failed even to lure people from elsewhere: “It didn’t stop people moving away, and it didn’t attract new families,” Aihio said.
China has offered free fertility treatments, Hungary big tax exemptions and cash, and Singapore grants for parents and grandparents. A Danish travel company even ran an ad campaign to “Do it for Denmark”. In Japan, the state funds AI-powered matchmaking, while Tokyo’s metropolitan Government is offering a four-day working week to staff in an attempt to encourage people to become parents.
Governments are still hunting for policy options to counter a looming economic crisis as older populations expand and the pool of workers shrinks. It is a shift that think-tank the Robert Schuman Foundation has called “demographic suicide”.
The reasons for the trend have been fiercely debated, while some potential solutions, such as immigration and pushing people to retire later, have proved deeply politically unpalatable.
“The issue of population ageing presents multiple challenges for Europe,” said Olli Rehn, governor of the Finnish central bank. “First, the worsening dependency ratio is putting significant pressure on public finances. Second, an ageing society tends to be less economically dynamic and less entrepreneurial.”
The decline in birth rates is a peculiarly universal problem – no continent has been left unscathed by the trend. Two-thirds of the world’s population now lives in countries where people are having babies at a rate too low to replace their population.
More and more countries are joining the list. By 2100, just 12 countries – 11 in Africa and the tiny Pacific island state of Vanuatu – are expected to have fertility rates above the crucial level of 2.1 births per woman. Not a single country is expected to have a rate above 2.3 by the end of the century.
Policymakers may be tempted to focus on more immediate crises. But the decline in fertility rates threatens to lead to deep economic malaise. Fewer babies and more older residents lead to a lower proportion of people of working age, denting tax revenues at the same time as costs associated with ageing societies, such as state pensions and healthcare, increase.
Without sufficient policy action, analysts at rating agency S&P Global estimated in 2023 that fiscal deficits would balloon by 2060 from a global average now of 2.4% of GDP to 9.1%. The global net government debt-to-GDP level would very nearly triple.
Meanwhile, a McKinsey report in January suggested many of the world’s richest economies, such as the UK, US and Japan, would need to at least double productivity growth to maintain historical improvements in living standards amid sharp falls in their birth rates.
Parts of Asia, especially China, and Latin American countries are particularly exposed. In 1995, 10 workers in eastern Asia supported one old-age person; by 2085, it is projected to be one to one.
Politicians worry that they may be powerless to act, as social pressures on women undergo a profound change. Sarah Harper, professor of gerontology and director of the Oxford Institute of Population Ageing, said surveys of young women across the world, from Europe to South-East Asia, suggested a once built-in social obligation for women to reproduce – and an assumption on their part that if they could, they probably would have children – no longer existed.
Careers and increased gender equality are a part of that. “We have a whole cohort of women in high-income countries, but also in South-East Asia, and particularly East Asia . . . who have been educated in a very gender-neutral way,” said Harper. “They enter the workplace in a gender-neutral way, and then they become parents and suddenly, no matter how hard one tries, it’s not gender-neutral.”
Policy is also likely to have little effect where norms around the number of children are ingrained. Harper noted that in China, despite the end of the one-child policy in 2016, women still generally had just one child.
“Once you come to a one-child society, then why would you want to have two children? Because everyone has one child . . . everyone is geared up to having one child. Institutions are geared up to having one child,” Harper said.
Heidi Colleran, an academic at the Max Planck Institute for Evolutionary Anthropology in Germany, said that despite decades of research and thousands of people working on demographic trends, there was little to no consensus on why fertility rates kept declining.
“There’s lots of general threads to pull on: the rise of the nuclear family, changes in the age of marriage, the rate at which people live together, the age at which people start having their first child is getting older and older,” she said. “There’s lots of these individual-level features . . . and they’re all correct . . . [But] the same constellation of predictors, they are going to be correlated with each other in a different way in different places.”
Yet, while personal choice has played a part in the global decline in childbearing, studies indicate people are often having fewer children than they would like to – indicating there could still be a role for public policies in changing that.
Barriers such as the cost of childcare and housing, financial instability, persistent gender inequality, inflexible working conditions, and a lack of job security are among the factors holding people back from having more children.
Better policies may not be able to close the gap completely, but they can help. “Supportive family policies – such as accessible childcare, financial incentives, and cultural acceptance of working parents – can significantly impact demographic trends,” Rehn said.
Experts agree. “Conventional pro-natal policy that is chucking money at the problem works to an extent,” said Lyman Stone, demographer at the Institute of Family Studies, who specialises in fertility.
Stone said studies showed South Korean fertility rates could be even lower than they are now without baby bonus programmes, the expansion of state-funded childcare, subsidised fertility treatments and housing assistance.
At the same time, Finland remains one of the world’s most rapidly ageing societies thanks to a big baby boom after the second world war. Neither cheap childcare, nor “baby money” paid out by dozens of municipalities, appear to have had much impact on the country’s birthrate, which remains among Europe’s lowest.
Aihio said that good local services – such as libraries, swimming pools and decent childcare – seemed more important than money in encouraging women to have babies. And Rehn acknowledged that policies could take a “long time” to show any pay-off.
Some governments have also faced criticism for how they target measures to encourage people to become parents. In Italy, for example – where the fertility rate stands at a modest 1.2 – only heterosexual, married women are allowed to undergo in vitro fertilisation, even privately. Single women and those in same-sex partnerships are denied access.
Another “huge headache for policymakers”, said Paula Sheppard, evolutionary anthropologist at Oxford University, was that different parts of the population needed different policies.
Women with low levels of education delay having children because of concerns about the stability of their relationships and the need to live near their parents. By contrast, those with a university education worry about dropping down the career ladder and want a hands-on partner, her research has suggested.
Others studying the challenge of old-age dependency ratios argue there is no need to focus policy changes primarily on births.
Edward Paice, a demographics expert focusing on Africa, said there was an obvious answer to the west’s demographic problems: immigration. “Europe can’t hermetically seal itself anyway. There are tremendous opportunities for western countries to rethink how they engage with African countries,” he said.
An influx of foreigners has slowly but steadily increased Finland’s population in recent years. But while Rehn acknowledged that work- and education-related immigration was “an essential part of the solution”, he added: “Of course, in the age of populism this is a politically challenging message.”
Governments also want people to work for longer. Harper, the professor of gerontology, said it was important for societies to acknowledge that retiring from the workforce and then expecting to live on social support for decades afterwards was “just not sustainable”.
Like immigration, raising the retirement age can come at a steep political cost.
In France in 2023, people took to the streets in protest as President Emmanuel Macron rammed through legislation to raise the retirement age from 62 to just 64. Many Chinese have reacted angrily to legislation to raise statutory retirement ages, which are some of the world’s lowest.
“You can either increase migration rates or retirement age, or encourage people to have more children,” said Edward Davies, policy director at the Centre for Social Justice in the UK. “I suspect of the three, people naturally would like to have families, whereas actually telling them they have to retire later or you have to have mass migration – it’s probably just less popular.”
Written by: Eade Hemingway and Janina Conboye in London and Richard Milne in Oslo
Additional reporting by David Pilling in London
© Financial Times
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