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The Cost of Low Fertility in Europe

Le coût de la basse fécondité en Europe

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Abstract

We analyze the effect of fertility on income per capita with a particular focus on the experience of Europe. For European countries with below-replacement fertility, the cost of continued low fertility will only be observed in the long run. We show that in the short run, a fall in the fertility rate will lower the youth dependency ratio and increase the working-age share, thus raising income per capita. In the long run, however, the burden of old-age dependency dominates the youth dependency decline, and continued low fertility will lead to small working-age shares in the absence of large migration inflows. We show that the currently very high working-age shares generated by the recent declines in fertility and migration inflows are not sustainable, and that significant drops in the relative size of the working-age population should be expected. Without substantial adjustments in labor force participation or migration policies, the potential negative repercussions on the European economy are large.

Résumé

Nous analysons l’effet de la fécondité sur le revenu par habitant, avec un intérêt particulier pour le contexte européen. Pour les pays européens avec une fécondité inférieure au seuil de remplacement, le coût de la baisse continue de la fécondité ne pourra être apprécié que sur le long terme. A court terme, nous démontrons que la baisse de la fécondité réduira le rapport de dépendance des jeunes et élèvera la part de la population d’âge actif, ce qui entraînera une hausse du revenu par habitant. A long terme, le fardeau de la dépendance des personnes âgées pèsera toutefois plus que la baisse de la dépendance des jeunes, et la poursuite de la chute de la fécondité conduira à un abaissement de la part de la population d’âge actif, en l’absence de mouvements migratoires de grande ampleur. L’étude apporte la preuve que la part très importante de la population active résultant du déclin récent de la fécondité ne pourra pas se maintenir, et que des baisses significatives de cette part sont à prévoir. Si des ajustements importants en matière de participation au marché du travail ou de politiques migratoires ne sont pas mis en œuvre, les répercussions négatives sur l’économie européenne pourraient être considérables.

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Notes

  1. Gabon is an exception to this pattern.

  2. It should be noted that by 1960 most of the demographic transition had been completed in European countries.

  3. A stable population refers to a population that has constant age-specific fertility and mortality rates, which, in the absence of migration, implies a constant age structure and constant population growth.

  4. The total number of births is the age-group-specific population times f/2. Thus, to get a birth cohort size of 1, we need a “parent cohort” population of 2/f.

  5. In the case with zero mortality before old age, replacement fertility equals 2.

  6. In this stylized framework, we assume for analytical simplicity that agents die either at the end of the second or the end of the third period. One can, however, interpret σ as the average fraction of people from the previous cohort still alive over the last period of life, in which case death could occur any time during the last period of life.

  7. We restrict the domain of our analysis to the set of positive real numbers.

  8. As this fertility rate can be above or below the replacement fertility rate, the working-age-share maximizing stable population fertility rate parameter will lead to positive, zero, or negative population growth. Thus we cannot assert that the fertility rate that maximizes the working-age share is the “optimal” fertility rate—the population growth consequences may impose a negative effect on economic growth.

  9. We initiate the simulation with a flat age structure, and then impose constant age-specific fertility and mortality rates to impute the stock of each age group in each period. It takes up to 200 simulated periods for age structure to converge to a stable population distribution. In Fig. 4 we show the resulting stable population working-age share for three examples of mortality schedules and fertility rates between zero and ten.

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Authors and Affiliations

  1. Harvard School of Public Health, Program on the Global Demography of Aging, Cambridge, USA

    David E. Bloom, David Canning, Günther Fink & Jocelyn E. Finlay

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  1. David E. Bloom
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  2. David Canning
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  3. Günther Fink
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  4. Jocelyn E. Finlay
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Correspondence to David E. Bloom.

Additional information

This article was prepared for the International Conference on the Economic Consequences of Low Fertility, April 11–12 2008 at the University of St. Gallen, Switzerland. We are grateful to three anonymous referees and to Rainer Münz, and other participants in the conference for their helpful comments. Support for this research was provided by grant number 5 P30 AG024409 from the National Institute on Aging, National Institutes of Health, and by a grant from the William and Flora Hewlett Foundation.

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Bloom, D.E., Canning, D., Fink, G. et al. The Cost of Low Fertility in Europe. Eur J Population 26, 141–158 (2010). https://doi.org/10.1007/s10680-009-9182-1

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