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The End of Population Growth: Is That A Good Or Bad Thing?

November 13, 2011

By Fiorenzo Conte

The world population has reached 7 billion. This is associated with a slowing rate of population growth and consequently an aging population. This fact bears the question: is this a good thing? Will the end of population growth have beneficial consequences in the world? Sanjeev Sanyal on Project Syndicate argues that too little population growth will pose enormous challenges. His punch line is that as total fertility rates in big countries such as China and India fall below replacement level, the share of  the working age population in the global population will soon drastically shrink. In other words the end of population growth  will result into a shortage of global labor force. Sanyal is right in shedding light on the problems associated with declining fertility rates and ageing population because they do not concern only developed nations. An increasing number of countries are facing a declining ratio between population in working age and population retired whereby a declining population aged 25-64 is called upon to finance the retirement of a growing population aged over64. In China, for example, in 1993 there were 10 economically active people per person retired, in 2040 there will be only 2. Given the lack of a system of pension and of social insurance, the responsibility of catering for such groups will fall exclusively on the households with the associated risk of generating social and inter-generational strife.

However, to look exclusively at the problems associated with the end of a population growth misses the point. In fact the appropriate counterfactual to very slow population growth is not a scenario with no problem; rather it is a preceding stage of the demographic transition i.e. high fertility rate and rapid population growth. If one follows the line of thoughts of Sanyal, one would conclude that rapid population growth is a good thing insofar as it increases the share of the population in working age at faster pace than the dependant population. However, this demographic dividend, which has the potential to increase the per capita productive capacity of a country, can sometimes turn in a curse. In fact if one country has a big share of people ready to work it needs to create jobs to gainful employ them. If the country does not have jobs to offer it will face a social bomb. The uprising of the youth in Arab countries gives you an idea of the dividend turning in a curse.

Secondly, the way Sanyal’s argument is put forth conveys the idea that the trend of slowing population growth is somehow reversible. If China was successful in pushing down fertility rate by introducing the one child policy, it would be desirable to introduce some kind of policy which incentivizes higher fertility rates. The point is that this is not going to happen anytime soon. The point where fertility rate is equal or below fertility rate represents the end of the demographic transition during which population grows because fertility rate are higher than mortality rate (see graphic). There is in other words a disequilibrium which was preceded by another equilibrium with high fertility rates mirroring high mortality rates. What brings fertility rates down is fundamentally the underlying drop in mortality rates. In other words, there seems to be a tendency at the macro level in the society to naturally re-establish some sort of equilibrium by bringing down fertility rates thus equaling mortality rates. For this reason government policies are unlikely to revert this trend if the underlying factors do not change.

In sum, Sanyal rightly points out the problems which the end of a demographic transition will bring about. However, every stage of the demographic transition is associated with a different set of problems. If an ageing population will result in a shortage of global labor supply, the presence of a big labor supply brought about by a rapid population growth can pose serious problem to countries if jobs are not there to gainfully employ the youth bulge. More importantly, the problems associated with a slow population growth are here to stay as the demographic transition is unlikely to reverse ad fertility rates are unlikely to go back up.

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