How population control influences economic growth
Economic growth is often heralded as the guarantee of future prosperity for a countries inhabitants and the leading measure of a modern civilisations progression, but is it possible that the continual emphasis on growth could eventually lead to population instability?
How little is too little? The concern of excessive fertility in less developed countries has long been a contentious topic, but at the turn of the century a more pertinent focus has taken shape in the form of the low fertility levels of the rich world.
History has shown there to be a strong correlation between countries growing richer and birth rates subsequently declining. The likes of Italy, Hong-Kong, Japan and South Korea to name a few, have all seen their respective fertility levels fall below 2.0; the necessary level for a stable population growth. This demographic shift means that the population will roughly halve every generation. South Korea, one of the fastest growing economies in the 1960’s to early 2000’s, is now expected to reach zero inhabitants by 2750. In 1960 the country had a fertility rate of 6.16 children born per woman however latest figures suggest this currently stands at 1.25 – CIA fertility rates. Inversely the same period has seen their GDP per capita (a relative measure of economic output per head) soar from 155.60 USD (1960) to 24,565.56 USD (2014) – GDP per Capita.
So what are the economics implications of this growth?
Firstly, lets consider the impact this has on the economies dependency ratio, a measure showing the number of dependents (people aged 0-14 and over the age of 65) to the total population (aged 15-64). Due to a lack of new births limiting the future workforce numbers, as the working age population shrinks – so too will the government tax receipts. The number of active labour market participants will correspondingly fall so fewer people will be left to pick up the tax bill. As those in the workforce hold a higher disposable income on average and so spend more that their dependent peers, the economy would also see a gradual fall in overall consumption levels. In addition to this, a higher proportion of dependents will have a catastrophic effect on the pension system; which is usually funded through tax receipts. The compounded impact of these factors will put a downward pressure on GDP and ultimately as output levels collapse the economy will begin to shrink.
Secondly, on the assumption that governments will try to offset this loss in output, it is likely that those in the active labour force will be subject to higher income and corporate taxation in order to plug the gap in tax receipts. The ramifications of this could be that the economy suffers an outflow of workers and investment from the domestic market, wherein workers can no longer afford to live in the home country and businesses are not able to pass on higher taxation charges to consumers, severely lowering profit margins. The knock-on effect of these factors would restrict the government’s ability to exercise fiscal measures, in an attempt to boost output levels; due to a lack of spending flexibility.
Boosting fertility levels:
To counteract some of the aforementioned challenges governments have tried and tested a series of approaches to influence fertility levels. The most famous of these, China’s ‘One-Child Policy’ was legislation formally introduced 1980, to curb what at the time was thought to be a population-overcrowding crisis. In effect the policy limited families to having one child, enforcing fines and legal action against those found to be breaking the law. Several decades after its implementation, China, the fastest growing economy over the last two decades with an average annual GDP growth rate of 8.6%, now faces a similar ageing population issue to South Korea, with a fertility level of 1.5. The topic of interest now turns to what fertility boosting incentives governments may action in these countries:
Possible solutions:
- Providing benefit payments as an incentive to encourage families to have more children. This plan in its simplest form would essentially provide a form of tax credit as a lump sum value or residual payment; although clear restrictions would need to be put in place to outline limits. Despite clear financial motivation this plan could also encourage a certain degree of misappropriation in the first case, where people fail to consider the long-term financial responsibilities of children in light of the short-term reward. It should also be taken into account that such a provision would pay people who would have had children anyway and so would be considerably inefficient.
- Encouraging more immigration to add to the existing labour force in the home country. This approach would allow for a controllable increase in population size by allowing more migrant workers to take residence in the country. It should be noted that this might suppress wages in the home country; although this would vary by sector; and consequently could incite stigma from native residents. This method would largely be unlikely however given the political sensitivity of immigration and ensuing implications this could have for the incumbent party.
- Extending parental leave and standardising this for men and women. This has been a widely tested tool in parts of Europe – in France for instance, couples can share leave of up to two years. These measures have shown to improve male participation in child rearing responsibilities however show little evidence of increasing child rates.
- Subsidising nurseries. This has proved to be a most effective way of encouraging higher birth rates, largely reducing the opportunity cost of mothers choosing between work and parenthood. Evident in France, the provision of cheap child caring services such as nurseries has seen it boast one of the highest fertility rates across Europe.
The question on the impact of population control on economic growth is a growing challenge of the modern era. The significance of this relationship is clear to see; however what isn’t clear, is the most effective way to tackle this growing phenomenon. Taking into account the aforementioned points, it is also key to consider the environmental implications of population levels, as this too presents key arguments on the sustainability of natural resources and the potentially drastic causation effect this can have on population levels on a global scale.
In the cases we have covered however, the focus has been on societal choices. The use of measures to boost fertility will vary widely across the world, taking into considerations the individual country laws, demographics and political agendas, with its growing significance, finding a way to influence population stability will be as key to civilizations progress as economic growth itself.
