International team reveal how low birth rates can bring economic benefits


birth rate

Moderately lower birth rates like that in UK can actually improve broader standards of living, according to a new global study.

In wealthy countries, including the UK, couples are having fewer babies or none at all, leading to ageing populations and widespread concern about declining tax revenues, higher spending on pensions and healthcare, and possible economic decline.

The UK has a moderately low birth rate, which is considered to be a little below the replacement rate of two children per woman. The birth rate  is currently 1.88 births per woman; according to data published by the Office of National Statistics (ONS), just 698,512 babies were born in the UK in 2013, down from 729,674 in 2012. The fall in birth rates in the UK is the first since 2001 and the biggest since 1970. 

Some governments tend to favour higher birth rates to maintain the workforce tax base needed to fund pensions, healthcare and other government benefits for the elderly.  However, researchers from Imperial College Business School as part of an international team have found that when public and private costs are taken into account, a moderately low birth rate can improve the overall standard of living, especially in wealthier countries.

According to the study, a moderately low birth rate means that families don’t have to stretch their income to raise their children. This enables the families in wealthier countries to maintain their standard of living, even with an ageing population. The researchers explain that even if countries have to raise their taxes to pay for an increasingly older population, it is far less of an expense on the nation’s wealth than if people had to fund larger families, which ultimately costs the nation more.

Professor James Sefton, co-author of the report, at Imperial College Business School said: “In many countries such as the UK the birth rate is declining and we also have an aging population. This has caused concerns about the effects it may have on long-term prosperity.  However, our study demonstrates that the UK’s birth rate is actually just about right to foster overall prosperity. I hope the relevant governments will focus more on targeting policies to accommodate an aging population rather than on encouraging people to have more children.”

In the study, the team found that intergenerational transfers of resources – whether private transfers of wealth between generations or public transfers of wealth such as taxes that fund state pensions – enable the overall standard of living to be maintained even in the face of a lower birth rate. This is because public transfers such as pensions enable older people to maintain their standard of living, while younger people receive private transfers of wealth via financial support from parents who pay their expenses such as education. This model works when families have fewer children as the wealth is not spread too thinly.

When private intergenerational transfers and the capital costs of equipping a new generation of families are analysed, it shows that low fertility, older populations and gradual population decline could improve standard of living.  This is because the fewer children families have the less they pay in costs associated with raising them, which enables families to keep more of their income.

While fertility rates are nearly ideal for maintaining overall standards of living in many wealthy nations such as in the UK and the US, the team found that the birth rates in other wealthy nations like Italy and Japan are so low that they have the long-term potential of reducing living standards when public and private costs are included.

The team correlated birth rates for 40 countries with economic data from the National Transfer Accounts project - which measures how people at each age produce, consume, and share resources and save for their future -  to  produce their conclusions.

The research was also carried out by Dr David McCarthy from the National Institute of Economic and Social Research (NIESR) in conjunction with the East-West Centre in Hawaii, the University of California, Berkley and The National Transfers Accounts network (NTA), which studies how population changes impact economies across generations.

 The report is  published in the journal  Science

See the press release of this article


Maxine Myers

Maxine Myers
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