Population Decline

The right-wing, free-market Mises Institute has published an article on population with some interesting facts to add to a complex debate.

Germans averaged 1.25 children per woman. This translates into a 1/3 decline in population per cycle (i.e every 75 years if people are living 75 years). So without immigration, Germany might expect a 1/3 decline by 2100  A declining population means fewer working-adults to pay out pensions.

“Dependency ratio”  is the ratio of workers to children-plus-elderly.

The UN expects Germany in 2100 to have 68 million people, compared to today’s 82 million — about a 20% decline. The age profile shifts so they expect a third more over-65’s — from 17 to 23 million. Meanwhile, children 14 and under fall from 11m to 9m. So total dependents goes from 28 million today to 32 million in 2100. Meanwhile, population age 15 to 64 goes from 54 million today to 36 million in 2100. Upshot is today a single working-age person supports half a dependent — 54 million carrying 28 million. But in 2100 that worker will support a single dependent — 36 million carrying 32 million. 

Two big caveats based on long-lasting trends.

 First, for over a century now people are not only living longer, but living healthy longer. This is called “health expectancy” and, sticking with Germany, is rising by about 1.4 years per decade. This implies that 65 year-olds in 2100 will be as healthy as 53 year-olds today. While today’s 65-year-olds are as healthy as 2100’s 78-year-olds. This alone would bring the elderly numbers back down to today’s, but the lower number of children means worker burdens actually decline. Of course, this would require raising retirement ages in line with health expectancy — 1.4 years per decade — which politicians are obviously deeply reluctant to do.

The second caveat is another long-term trend, economic growth. The irony here is that, from a population growth viewpoint, economic growth is actually the worst-case scenario. Because if the economy crashes instead, then historically the population actually soars — kids become your safety net if the welfare state goes bankrupt. So if we fail to grow, the demographic problem actually solves itself anyway. Either we grow, or population decline was a false alarm anyway.

Quantifying this growth, over the past 50 years Germany has grown 1.65% per year, real per capita. That trend puts a 2100 German worker making 4 times what they do today. Keep in mind this is likely underestimating the benefit, because any outperformance makes Germans richer yet, while any catastrophe probably makes them have more kids.

So, summing up, rising health expectancy implies there will actually be fewer dependents in 2100 Germany, while economic growth implies German workers will be 4 times richer, just on growth alone. The demographic burden plunges by 80% or more.

If you’re freaked out at the prospect of working an extra 1.4 years per decade, that economic growth alone suggests a 50% decline in worker burdens — twice the dependents on four times the income. So even if politicians are spineless, the welfare burden declines even with more dependents.

In a worldwide context, more people does tend to increase investment, therefore innovation and economic growth. This is obvious in the aggregate — there wouldn’t be any factories if there weren’t any humans — but people forget. So, on a world-wide level, we should have a bias towards more humans, while recognizing that, on a country level, a shrinking population is certainly no catastrophe.

https://mises.org/blog/population-decline-catastrophic