Addressing the Demographic Challenges: The Misleading Notion of a “Timebomb”

The first aspect to grasp about the demographic challenges faced by countries like the UK and US is to avoid the term “demographic timebomb.” This phrase, though tempting given the ongoing decline in birth rates, is strongly opposed by demographers, who study population changes.

“Number one, I hate the phrase,” states Sarah Harper, professor of gerontology at the University of Oxford. She elaborates, “I do not think there is a demographic timebomb, it is part of the demographic transition. We knew this was going to happen, and happen across the 21st Century. So, it is not unexpected, and we should have been preparing for this for some time.”

The challenge is indeed substantial. In developed countries, maintaining or growing the population requires a birth rate of 2.1 children per woman, known as the “replacement rate.” However, recent data shows a stark decline: in England and Wales, the total fertility rate fell to 1.49 children per woman in 2022 from 1.55 in 2021. This decline has been ongoing since 2010 and is mirrored in Scotland and Northern Ireland. Similarly, the US saw its fertility rate drop to a record low of 1.62 last year, a significant decrease from 3.65 in 1960.

“Two thirds of the world’s countries now have childbirth rates below the replacement rate,” adds Prof Harper. “Japan is low, China is low, South Korea is the lowest in the world.” Population growth is now primarily confined to sub-Saharan Africa.

The concern over declining birth rates stems from the economic issues they can trigger. Aging and shrinking populations result in a reduced workforce, which struggles to support a growing number of retirees. This raises pressing questions for government economists: how will economic growth be sustained if companies can’t find enough workers? How can a smaller workforce fund pensions for a larger retired population?

To counteract declining birth rates, nations can facilitate childbearing through enhanced childcare support, such as tax incentives and extended, fully-paid maternity leave. Companies could also offer flexible working hours and workplace childcare facilities. However, these measures may only slow the decline rather than reverse it.

The core issue is that as women’s education and workforce participation increase, their quality of life improves, leading them to prioritize their careers and financial stability over having more children. Consequently, they often opt for fewer children or none at all.

Countries facing declining birth rates have two primary strategies: extending the working life of the population or increasing immigration. Singapore, one of the fastest-aging countries, is pursuing the first option. “There is a lot of effort being put into raising the retirement age, training in middle life, and encouraging companies—which have to offer you re-employment up to the age of 69—to hire older workers,” says Prof Angelique Chan, executive director of Singapore’s Centre for Ageing Research & Education. Currently, Singapore’s retirement age is 63, set to rise to 64 by 2026 and 65 by 2030, with re-employment options extending to 70.

The Singaporean government is also enhancing healthcare to ensure older citizens can remain in the workforce. Prof Chan highlights, “Singapore is spending a huge amount of money so we have the healthiest kind of population, giving people the opportunity to work [in their old age].”

In the US, many elderly individuals are working to cover their living expenses. Ronald Lee, emeritus professor of economics at the University of California, notes, “If we look at the proportion of consumption of 65-year-olds and older in the USA that is funded by continuing to work, it is significantly higher than in other developed countries.” He argues this is not necessarily negative, suggesting, “People are healthier, vigorous, cognitively sharper, and ready to go on at much older ages than used to be the case. I hope to see retirement ages rising well into the 70s.”

Currently, Americans receive a full social security pension at 66 years and two months, gradually rising to 67. Prof Lee’s viewpoint, though potentially unpopular, reflects economic realities: as life expectancy increases, funding longer retirements becomes increasingly difficult, necessitating extended working years.

Alternatively, increased immigration could address falling birth rates, though this remains politically contentious. “Migration could easily solve the problem of lower birth rates from a demographic point of view,” says Prof Harper. “There are political and policy issues, but demographically what we should be doing is allowing those countries with huge child-bearing rates, and with huge numbers of workers for maybe the next four decades, to be able to flow across the world and make up the slack.”

Despite the potential of immigration to alleviate demographic challenges, it faces significant resistance. For instance, Hungary publicly adopts a zero-tolerance stance towards migrants. However, Elizabeth Kuiper, associate director of the European Policy Centre, notes, “We know that while these countries will not admit it publicly, in sectors like care and health care they have developed unspoken strategies for selective migration.”

The broader issue is that immigration levels in most developed nations are insufficient to compensate for aging populations, and the concept remains deeply unpopular. To address this, countries must find a balance between extending working lives and increasing immigration. Achieving this requires political consensus, yet advocating for increased immigration and extended working years is not typically popular with voters.

The demographic challenges facing countries like the UK and US are complex but not insurmountable. They necessitate a nuanced understanding and a multifaceted approach involving both policy reforms and societal shifts. The term “demographic timebomb” oversimplifies these challenges and overlooks the strategic adaptations necessary to navigate this demographic transition effectively.