Why are birth rates falling across the world?
Worsening demographics is the biggest structural shift of our times. And it is picking up pace.
In more than two-thirds of all countries, women now have fewer children, on average, than the replacement rate of 2.1, which sustains a population without immigration. That is up from less than half of all countries just a decade ago.
This has been a longstanding challenge for many wealthy economies. Fertility rates have remained below the replacement rate for the UK, Germany and Japan from the early seventies, for South Korea from the mid-eighties and for the US since 2009.
But this is no longer a problem confined to the developed world. India, the world's most populous country, saw its fertility rate fall below replacement levels a few years ago. So did Mexico, Tunisia and the Philippines. In the developing world, they join several middle-income economies, such as China and Brazil, that have faced this issue for some time.
So, what factors explain the falling fertility rates across the globe?
Economic development has long been linked with slowing fertility rates. And that is still a contributory factor in many developing countries.
As societies grow richer and more industrialised, family sizes shrink. Better healthcare lowers child mortality, reducing the need for parents to have more children. Better education increases awareness of contraception and family planning. It also improves labour market outcomes for women and encourages growing female labour force participation, raising the opportunity costs of having more children.
Further, as economies develop, many parents tend to have fewer children so as to give each the best start in life. If public schools and universities are not up to scratch, the cost of private education limits the number of children aspirational parents have.
These are relatively well understood channels, mostly at work in the developing world. Recent studies point to an additional factor affecting fertility rates - the adoption of technology.
This is not a new phenomenon; research dating back to the 1990s showed that widespread TV ownership in India contributed to falling fertility rates, particularly through the diffusion of western family ideals.
But discussion around recent declines in fertility focuses on social media and smartphone adoption. A 2022 paper by Wilderman, Schrijner and Smits found that a reduction in fertility rates in sub-Saharan Africa, a region with one of the highest fertility rates overall, was linked to greater usage of Facebook.
Social media facilitates the diffusion of information and exposure to like-minded people, potentially reshaping existing attitudes towards having children. Some also see it impacting socialisation and coupling among young people.
Relationship rates have declined across most regions this century. Around half of single US adults say they are not looking for a romantic partner. The proportion of young East-Asian adults married or cohabitating has fallen from 64% in 2001 to 46% last year.
In the developed world, growing economic pressures on young people also seem to be playing a part. Younger generations experience slower wage growth, higher living costs and reduced wealth accumulation compared to older cohorts at the same age. These, alongside deteriorating housing affordability, can obstruct many from having children. Around one-quarter of childless UK men aged 32 cite financial reasons for not yet having children, according to the Resolution Foundation.
The relative importance of these factors varies between countries. But the consequence is evident in the data.
The global economy is ageing faster. For most major economies, this will put pressure on both sides of the fiscal ledger: raising health and social care spending, while weakening the tax base needed to fund it. So far, developed economies have relied on immigration to lean against the economic implications of an ageing population. But with the developing world increasingly facing the same demographic dilemmas, sourcing foreign labour could get harder.
Historically, population expansion has been a key driver of economic growth. As its influence on activity wanes, productivity gains, particularly through new technological advancements, will be crucial to supporting and raising living standards.
Chart of the week
Last week we mentioned we’d be looking out for the Bank of England’s interest rate decision. The Bank held rates at 3.75%. This is partly because inflation has come in below what many forecasters had feared at the onset of the Iran war. Households’ inflation expectations have also fallen and are now close to where they were before the war began. The chart above shows that consumers now expect inflation to be 3.4% a year from now, still above the Bank’s 2% target but well below the 5.4% when asked the question in March.
The Bank follows inflation expectations closely, because sustained rises could lead to people asking for bigger wage increases and businesses raising prices, both of which entrench inflationary pressures. The recent fall in expectations, alongside continued labour market easing, contributed to the Bank’s decision to keep rates on hold.
That said, the full economic impact of this war is far from realised. We expect inflation to accelerate over the coming months, eclipsing wage growth for the first time in more than three years. Navigating that will require a careful balancing act by the Bank, with rising inflation encouraging tighter monetary policy while declining real wages support keeping rates on hold.
What we're looking out for this week?
This week we’ll be looking out for the UK Purchasing Managers’ Indices (PMIs) for July. Preliminary estimates released last month indicated that UK business output returned to growth in July, following two months of contraction caused by the conflict in the Middle East, which raised input prices and hit confidence, weakening demand. With official GDP data pointing to a marked weakening of activity in the second quarter after a strong start to the year, July’s PMIs will provide early indications of whether activity picks up in the third quarter.
We’ll also be assessing the US jobs report for July out on Friday. Job growth slowed in June after several months of very strong gains. Economists expect July’s data to signal a cooling but still robust labour market, with a modest acceleration in employment growth and unemployment remaining slightly above 4%.
And finally...
A boxer secured a bronze medal at the Commonwealth Games last week, despite not winning a single match. With only five entrants in the weight category and a first-round bye, the boxer from the island nation of Tuvalu was guaranteed a place on the podium before even stepping into the ring - shadow boxing