A stimulus package for fertility?


Is fertility related to the economy? Absolutely. Demography is the study of human populations and a report out last month by Jamie Hall and Andrew Stone in Reserve Bank Bulletin shows how demographics will contribute to a stressed global economy. The main factor that drives population growth is the fertility rate - the number of babies born per woman. The world’s population was growing, rapidly throughout most of the 20th century. However, a significant global decline starts after the post-war baby boom. Prior to that, we could easily find five babies per woman, now we are down to 2.5 largely due to contraception and rising living standards.

The United Nations has projected that the decline will continue to the mid 21st century when the average will be two babies per woman globally. At this time, the new babies made won’t be enough to replace the people who die. The planet’s population will be in decline.

From an economic point of view, the source of growth in a country’s output of goods and services (GDP) comes from two places: growth in labor input and improvement in productivity. The biggest factors contributing to the first, growth in labor input, are population growth and growth in the proportion of working age population.

From 1995 to 2005 the United State’s average growth in real GDP was 3.3% per year. After teasing out the numbers, 1.1% came from increased population and 0.2% came from rise in working age people. But new estimates now show that over the next ten years, to 2020, the population increase should contribute less than 0.9% and there will be a decline in working age persons to minus 0.3%.

And that’s just in the US. Countries all over Asia are forecasting similar declines. Except for India and Indonesia. It is likely that India will overtake China as the most populous country in the world close to mid century.

So as we consider declining economies worldwide, it is interesting to overlay the demographic studies as well. No amount of stimulus is going to make more people.

Source: Ross Gittins/smh.com, Reserve Bank & Bulletin


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