The Economic Consequences of a Declining Birth Rate — and How We Can Mitigate Them

Birth rates are declining all over the planet, in all continents, and in all echelons of societies. For example, in both Turkey and Tunisia, the birth rate has fallen to around 1.5 children per woman, while in the United Kingdom, it has collapsed to 1.44. It is said that for a country in the developed world to maintain or grow its population, it needs a birth rate of 2.1 children per woman.

Why is this happening?

Studies show that parents are choosing to have less children and putting more time and resources into 1 or 2 children instead. Of course this won't apply to every nation, as some families rely on their children for labour in industries such as tobacco farming. But in other developed countries such as Hong Kong and southern Europe, the birth rate is at a staggering 1.3 children per woman, where some parents would rather produce fewer, highly skilled children. Children are expensive - parents pay for school, food, childcare, and with rising house prices in the UK, they aren't getting any cheaper. Instead of putting 3 children through state education, some parents may choose to have 1 child and pay for private education. This opportunity cost of additional children is contributing to a declining birth rate.

Another contributor is the rise in singles - studies are showing that people are choosing to stay single or remain single for longer.

According to Dr Alice Evans, currently, more women are choosing to be more selective. Now, women can work for themselves, for a fairer price, leading to a smaller dependence on men for income. As society shifts away from the nuclear family model, less people get married /cohabit, leading to a reduction in birth rates. This may not be the case in poorer countries, as the gender pay gap is still prominent, however, increases in the availability of technology influences preferences and tastes, leading to both men and women becoming more selective. Also, with this rise in technology, there’s a reduction in active socialising: less people go out and meet new people and for relationships, leading to a further reduction in birth rates. Furthermore, there is no longer a stigma attached to being single. People no

longer feel the pressure to get married and form relationships, due to less reliance on men for income, and increased selectivity.

What are the effects of falling birth rates?

With fewer births, the average age of a population increases. This places pressure on social services, healthcare and pensions, as there are fewer individuals of working ages, and more above working age. This causes a shrinking labour force, which can lead to labour shortages and reduced economic growth. Japan, for example, has a stagnant economy, partially caused from an aging population and deflation, causing labour shortages, a reduction in aggregate demand and reduced consumption and investment. Although the output per worker remains constant, the labour force is shrinking leading to a fall in national output. As the population ages, more people become economically inactive each year, hindering unemployment (a key macroeconomic objective of government), but also stifling the innovation, dynamism, and fresh ideas that younger generations contribute. With an older average age, economic growth slows, and the government spends more on healthcare and pensions, putting more strain on younger workers in families to provide. As an example, in Tamil Nadu (India), only 29% of women work. This means that almost 71% of men must financially support 2 sets of elderly parents, along with their family.

So, what can we do about it?

Professor Sarah Harper tells us that there is one key answer. Immigration. She states that demographically, we must allow more immigration from the countries with soaring birth rates, to counteract our tumbling birth rates. However, there are other things a country can do such as increasing the retirement age (making people work longer). My own recommendation would be to encourage people to be economically active for longer; by increasing flexibility in working hours, health and decreasing pensions sizes.

1. Decrease the amount of money that companies and governments contribute towards pensions: As the size of pensions are lower at retirement age, people are encouraged to work for longer, to have enough retirement income. However, this may not be as effective as expected; 38% of people in the UK have pension inadequacy, and less than 9% of people received financial advice in 2024, so pension size may not be the problem. Instead, we could focus on educating people about how to save effectively for retirement.

2. Increase the quality and availability of healthcare: 776,000 of UK workers reported work-related stress in 2024. Also, 84% of UK employees report feeling stressed at least once a month, with 39% saying it affects their work performance. As people receive better healthcare, they are more likely to work for longer and be more productive. However, as healthcare improves, so does lifespan, meaning that pension sizes must be larger, to provide enough retirement income.

3. To accompany this, increase flexibility in working hours: People will stay in jobs for longer, as they have a less intense working schedule.

I believe these points must be taken into consideration, not only as they are effective, but also due to the ineffectiveness of immigration. If we increase immigration from poorer countries with higher birth rates, immigrants may be unskilled / low skilled and would require education and training schemes, which would cost the government a lot of money – along with all the commodities that would be provided such as jobs and housing.

Overall, it’s clear that falling birth rates bring challenges — fewer workers, more retirees, and growing pressure on healthcare. But there are clear and practical steps we can take to soften the blow, from encouraging people to work longer, to better healthcare and flexible working hours. Also, while immigration can help in the short term, it’s not a silver bullet, and can bring other challenges. Ultimately, we’ll need a balanced mix of solutions to fight the battle in birth rates.