How Low Population Growth Is Posing Challenges to Advanced Countries

08/11/2015 12:35 EDT | Updated 08/11/2016 05:59 EDT
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The population in advanced countries is growing at low rates. At the same time, it is also aging. An aging population combined with low population growth rates can have important social and economic policy implications. This may have important effects on economic growth, heath care, pension system and the standard of living in advanced countries.

Population in OECD countries is predicted to increase from the current level of 1.25 billion people to 1.3 billion in 2020 and further increase to 1.39 billion by 2050. The population growth rate has been quite low; it was 0.72 per cent in 2010 and 0.66 per cent in 2011, according to the OECD Factbook 2014. In 2012, population growth rate was higher in Canada (1.15 per cent) and the United States (0.75 per cent) than the OECD rate.

The total fertility rate has been quite low; it was 1.74 in 2010 and 1.70 in 2011 for OECD countries. A replacement fertility rate, which maintains population at its current level, is 2.1 for most industrialized countries. Therefore, the total fertility rate for OECD countries is below the replacement fertility rate. In 2011, the total fertility rate were 1.61 and 1.89 in Canada and the U.S. respectively. The low population growth rate and total fertility rate indicate that population is predicted to grow at a relatively low rate in the OECD countries. Again, in 2011, the working age population as a percentage of total population was 66.6 per cent for OECD countries, and higher in Canada (69.2 per cent) and the U.S. (67.1 per cent) respectively.

When considering the dependent population, the youth population (under the age of 15) as a per centage of total population in OECD countries is forecasted to decrease from 18.6 per cent in 2010 to 15.9 per cent in 2050, according to the OECD Factbook 2014. Both Canada (16.5 per cent to 15.6 per cent) and the U.S. (19.8 per cent to 18.0 per cent) are expected to show similar trends. Again, the elderly population (age 65 and over) of OECD countries is forecasted to increase from 14.7 per cent in 2010 to 25.3 per cent in 2050. The same trend is predicted for both Canada (14.2 per cent to 24.6 per cent) and the U.S. (13.1 per cent to 20.9 per cent) during the same period. Therefore, the OECD countries are forecasted to have an aging population with Canada and the U.S. predicted to have lower rates than the OECD level.

An aging population would put increased pressure on the health care system of the OECD countries. As healthcare costs increase with age, an aging population would increase the health care costs of the OECD countries with higher demand for doctors, nurses, medical equipments, etc. However, the health care costs have to be borne by the working age population. As the working age population is predicted to decrease, it would mean that there would be fewer workers to support the healthcare costs of the aging population. This is a potential crisis for all OECD countries, particularly countries like Japan that is forecasted to have a rapidly aging population.

Again, an aging population with higher life expectancy combined with a shrinking working population may have negative effects on the pension system of the OECD countries. When fewer workers support an aging population that has high life expectancy, it puts increased burden on the workers to support the pension system of the OECD countries. While the pension system may be under stress due to this potential problem, the aging population may have access to other types of income to support themselves like housing and financial wealth, which may ameliorate the potential pension crisis faced by the OECD countries.

The aging population would demand more social services that would require increased government expenditure necessitating higher government revenue. With a shrinking working age population, an increase in government revenue could only be achieved by increasing the tax burden on the population. Again, a shrinking working age population and low population growth would mean that there would be fewer workers and consumers, leading to lower investment and manufacturing of goods and services. Also, a potential increase in investment in health care services may require the transfer of investments from economic growth generating activities. The overall effect may be dampened economic growth in OECD countries.

Low population growth and an aging population pose potential problems to OECD countries. One way to increase population is immigration. Immigration, particularly of young and skilled people, from non-OECD countries to OECD countries would increase OECD population levels. Many OECD countries, including Canada and the U.S., experience substantial immigration. Immigration would increase the working age population, and boost the production and consumption of goods and services. This would increase economic growth of the OECD countries while ameliorating potential crisis like pension and healthcare expenditures.

Moreover, improvements in the quality of life and access to better healthcare services have significantly increased life expectancy in OECD countries. As people are healthier, they can remain in the work force for a longer time, and potentially stretch the working age population. Also, when people are healthier and working till an older age, they would purchase goods and services for a longer time. Then, the demand for goods and services would not necessarily decrease due to an aging population. This would maintain or improve the economic growth of OECD countries, and decrease the potential burden of pension and healthcare services.

Another way to increase population growth is to create incentives for people to have more children. In Canada, the Universal Child Care Benefit (UCCB) is used by the federal government to financially help families with children. Again, developed countries like Singapore have Baby Bonus Scheme to incentivize people to have more children. A combination of benefits that include cash gifts and tax rebates are used to encourage people to have more children. Therefore, various programs that encourage people to have more children and increase the fertility rate could lead to natural increase in the population level in OECD countries.

Low population growth and an aging population pose certain challenges to OECD countries. A shrinking labor force may be partially compensated by automation and increased use of robots in manufacturing processes. However, it would still lead to lower consumer demand of goods and services. There are various policies that OECD countries use to solve this problem. Policies that encourage people to have more children, immigration to OECD countries particularly by young and skilled people, and an expansion in the working age that allow people to stay in the work force for a longer time would alleviate the potential problems that OECD countries face.


OECD Better Life Index 2014