Demography is Destiny

The recent news that the Japanese diaper market for old folks is now larger than that for babies caught a lot of attention. Japan is at the leading edge of a demographic change that is now impacting on all the rich countries (and others). This consists of massive growth in the number of elderly combined with a collapse in the birth rate. Germany’s fertility rate for example is now in the region of 1.3 to 1.4 children per woman, well below the replacement rate of about 2.1. This is not a new realization of course, but has existed in public consciousness for a number of years. We have all seen it coming, but only now is it beginning to exert its effects. In this post I’m going to take a look at just one half of the equation – the collapsed birth rate – and assess its causes and the chances of a reversal.

  • Technology – the arrival of the Pill in the mid-60s brought a reliable and convenient contraceptive for the first time, importantly this was also within the control of women. 
  • Women’s education together with increased participation of women in the workforce. This increases the opportunity costs of having children – earnings foregone. The better-paid the job, the greater the opportunity costs.
  • The socialisation of pension provision. In earlier societies and in a number of societies in poorer countries until the present day, children served/serve as security for old age. In the West a large proportion of a worker’s income is appropriated by the state (taxes, social security contributions) and is thus not available to support the worker’s parents. Instead the state or its proxies functions as a middleman, with current pensioners being paid out of current contributions under the typical pay-as-you-go system. What this means is that whereas previously children were an investment, today they are consumption – potential parents decide to have children for reasons of self-fulfillment. As such, children compete with all the other ways of striving for personal fulfillment/consumption, of which there are many.
  • Job/Income uncertainty. The decision to have a child is a decision which will impact spending for many years to come. In recent decades changes in Western labour markets have caused both job uncertainty and income uncertainty to increase, compared with the years from 1950 to 1980. It is reasonable to expect this to have deterred family formation.
  • Relationship uncertainty. The massive rise in divorce rates, particularly since about 1970 – due to no-fault divorce – has meant a concomitant increase in the instability of family life. Not only does this impact the material resources available to raise children – see previous point – it also means that one parent can no longer rely on the other being present in the medium to long-term, in order to logistically and emotionally contribute to raising the child.
  • Culture. All societies have their sets of norms with regard to how individuals are expected to live and develop their lives. Up to several decades ago this included having children. This is no longer the case. Instead individuals can choose from a menu of lifestyle possibilities.

It is plain that none of these factors are going to reverse. If anything, they will continue to develop. Prognosis – birth rates to remain low and to tend even lower.

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