Declining populations
There are many possible solutions to solve the economic problems posed by demographic changes, but they must be enacted sooner rather than later in order to prevent a major decline in the economic performance of developed countries. For countries like Japan and South Korea, much of the damage has already been done, as the population is so old that it is already causing strain on their governments’ ability to control their deficits. One solution as mentioned above is immigration, which is particularly important to western European and north American economies such as the UK, US and Canada. The UK’s birth rate is below the replacement rate of 2 births per woman, but a large number of immigrants pre- and post-Brexit has kept the UK population growing and its workforce large and highly skilled. Although the birth rate has hit record lows, immigration is at a record high, driving growth. There are numerous debates across the developed world at the moment on whether large numbers of immigrants should be allowed and, while the societal benefit can be debated, the economic benefit is clear to see, as without the immigrant population, many countries would lack essential workers. One of the only downsides to immigration from an economic point of view is that it may drive regional inequality, especially in countries like the UK where the economy is driven by one city, London, in the UK’s case. As immigrants generally move to areas with good job opportunities, rural areas and small towns might not see a population boost and the resultant economic growth. Another solution could be better incentives for women to have children. Some of the countries worst affected by population decline also happen to have some of the greatest gender divides in the workplace, with Japan and South Korea having working conditions for women similar to that of Turkey, according to The Economist’s glass ceiling index. 11 Creating a better working environment for parents (especially women) would make more people feel like they are not being constrained from having children by their financial situation. This could be done via direct government grants or tax breaks to those who have lots of children, or more indirectly with such benefits being offered to companies who give parents more maternity/paternity leave. Finally, although less directly related to birth rates and population, technology could provide part of the solution on how to care for an increasingly elderly population. If workers become much more efficient because of advances in technology, it may be possible for a smaller working age population to care for a majority elderly population. The decline in productive capacity would be somewhat offset by the rise in productivity, so the economy would not decline or experience deflation. However, this is all theoretical and some would argue that without a large, young and skilled workforce, such technological innovations cannot be achieved. There is no doubt that declining populations are a huge economic and societal problem that much of the developed world already faces and will continue to face for the coming decades. Not only do they cause governments to struggle to balance their budget; they also cause the market to fail due to the sharp decline in the labour force. Once a population enters a decline it is hard to reverse, so it is important that high-income countries take action now so as to avoid the consequences of an old population whom the young are unable to support.
11 THE ECONOMIST at https://www.economistgroup.com/press-centre/the-economist/sweden-surpasses- iceland-as-the-best-place-to-be-a-working-woman-according .
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