Addressing the Demographic Shift: Solutions for Declining Birth Rates and Aging Populations in Developed Nations

The first key point about the demographic challenges facing countries like the UK and US is to avoid calling it a “demographic timebomb.” Though birth rates are declining in both countries, demographers, the experts who study population changes, strongly dislike this term.

“Number one, I hate the phrase,” remarks Sarah Harper, a professor of gerontology at the University of Oxford.

“I do not think there is a demographic timebomb. It is part of the demographic transition. We knew this was going to happen and would occur throughout the 21st century. It is not unexpected, and we should have been preparing for this for some time.”

Nevertheless, the magnitude of the impending issue is considerable. To maintain or grow its population, a developed country requires a birth rate of 2.1 children per woman, known as the “replacement rate.” However, recent figures for England and Wales reveal that the total fertility rate fell to 1.49 children per woman in 2022, down from 1.55 in 2021, continuing a decline since 2010. Scotland and Northern Ireland show similar trends in their separately recorded data. In the US, the fertility rate dropped to a record low of 1.62 last year, a stark contrast to 1960 when it was 3.65.

“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.”

Currently, population growth is mostly confined to sub-Saharan Africa. The concern over declining birth rates stems from the significant economic challenges they pose. As populations age and shrink, a smaller workforce must support a growing number of pensioners. This raises critical questions about economic growth and pension sustainability, causing government economists considerable anxiety.

To counter declining birth rates, countries could facilitate childbirth for women by offering more generous childcare provisions, such as tax breaks and extended, fully-paid maternity leave. Additionally, companies could be mandated to provide flexible working hours and workplace creches for new parents. However, while such measures may slow the decline, they rarely reverse it. Essentially, as women become more educated, work more, and improve their lives, many opt not to sacrifice their earnings and career prospects to motherhood, leading to fewer or no children.

Countries facing declining birth rates have two primary options: keeping their populations healthier and employed for longer or encouraging large-scale immigration. Singapore, one of the world’s fastest-aging countries, is choosing the former.

“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.

By re-employment, Prof Chan refers to elderly workers being able to continue working beyond the retirement age if they choose. Singapore’s retirement age is currently 63 but will increase to 64 by 2026 and to 65 by 2030. By then, the re-employment age is expected to rise to 70. The government is also intensifying efforts to ensure every citizen has a doctor to monitor their health, aiming to maintain a healthier workforce.

In the US, a growing number of elderly Americans continue to work to cover their living expenses. Ronald Lee, emeritus professor of economics at the University of California, points out that the proportion of consumption by 65-year-olds and older funded by continuing to work is significantly higher in the US than in other developed countries.

“I think it is fundamental for the whole world to get over the idea that older people are entitled to an indefinitely long period of leisure at the end of their life,” says Prof Lee. “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 70’s.”

Currently, Americans receive full social security pensions at 66 years and two months, a threshold that will gradually rise to 67. While Prof Lee’s views may be unpopular, economically, it seems inevitable. As life expectancy increases, sustaining longer retirements becomes increasingly difficult, making longer working lives an apparent solution.

Another potential solution to this problem, as Prof Harper points out, is increased immigration. However, this is a contentious issue politically in both the UK and the US.

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

Despite the evident pressures against large-scale immigration, even populist regimes often turn a blind eye when necessary. Elizabeth Kuiper, associate director of the European Policy Centre think tank, highlights Hungary as an example. While the Hungarian government claims to have a zero-tolerance stance on migrants, “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.”

However, the level of immigration in most developed countries is far from sufficient to offset the effects of an aging population, and yet it remains deeply unpopular. Demographic experts recognize that countries will need to make people work longer or increase immigration, likely both. Achieving this requires political consensus, but politicians understand that asking the public to support more immigration and extended working lives is not a winning strategy.