What happens to an economy when the older population ages faster than the younger generation can replace them? Today, this question is not just a concern for a handful of developed economies; it is a major global issue. Due to this global baby bust, two-thirds of the world's population now lives in countries below the world’s replacement level of 2.1 births per woman. Even India and China, two of the most populous countries, are reporting declining fertility rates. China’s fertility rate dropped to 1 in 2023 and its population fell in 2022 for the first time in decades, while the country faces severe aging.
This trend is not limited to India or China; seven EU countries rank among the 15 countries with the lowest birth rates worldwide. Developed economies such as the United States, Japan, and South Korea also appear on the list and are showing similar trends. The United States has also experienced slow population growth and again has a below-replacement fertility rate. The Institute for Family Studies predicts that its population will peak around 351 million and begin declining in the 2050s.
The global baby bust is slowly but surely redefining the global demographic landscape from Shanghai to San Francisco, and the reasons vary. A pioneering survey by the United Nations Population Fund (UNFPA) found that 39 percent of respondents said financial constraints are the main reason they are not having a baby. In many middle-income countries transitioning to higher-income levels, this is experienced as the standard of living increases. Additionally, greater access to education has also increased the opportunity cost for women’s time in many developing countries.
Experts attribute the world slipping deeper into sub-replacement levels to the increase in global average life expectancy, by almost 28 years (from 45.5 to 73.2 in 2023). It has also correlated with a decline in global fertility, from an average of 5 births per woman in 1950 to 2.3 births per woman in 2021. However, even with continued medical innovation, human lifespans can only grow so much.
This phenomenon threatens the sustainability of economies and services. It could significantly redefine countries’ economic structures in the coming decades, as more of the population ages and fewer young people support key sectors like healthcare, services, and the care economy. Fewer babies now could mean a smaller workforce and less tax revenue in the future as the number of retirees and the geriatric population to support grows. Under current pension and retirement support systems, this can also mean higher contributions, squeezing young people's disposable income. It can be even riskier if a country gets old before it gets rich. With a smaller working-age population, a country can face mounting public debt if it spends more on elder services than it collects in taxes. Some countries can also see diminishing productive capacity and lose their comparative advantage in trade and services as the working-age population shrinks.
Pro-natalist efforts in many countries have heavily relied on financial incentives and bonuses to ease the cost of raising a child, but they seem not to be working in their favor. For example, Japan has rolled out financial incentives, extended parental leave, childcare subsidies, and workplace reforms. Still, these efforts have failed to reverse long-term demographic trends. Even China, which implemented the aggressive one-child policy in 1979, has now shifted to a pro-natalist stance, and many provinces have rolled out “baby bonuses” as part of their policies to promote childbirth, as proposed through their national legislation in 2025.
Financial incentives are a one-dimensional approach and alone are not enough to address this complex issue. Falling fertility rates stem from changing priorities, cultural shifts, and new work patterns. Countries should consider whether their strategies are truly holistic. Immigration can help, since most immigrants are working age and do not add to K-12 education costs. Skilled worker pathways can bring talent to key sectors like healthcare, services, and technology. Due to shrinking working populations, countries will have to rethink and restructure pay-as-you-go pension programs.
Additionally, economies should focus on innovation and technology now to support more labor-intensive sectors to protect their productive units and support infrastructure, healthcare, and security in the future. No matter if the population is young or old, investing in healthcare is non-negotiable, but technology that can mitigate the impact of an aging population should not be overlooked. Lastly, low fertility, population aging, and population stagnation should not be used as an excuse to implement nationalist anti-migrant or gender-conservative policies. Instead of asking why young people do not value family, countries should ask what conditions they need to build the relationships, families, and futures they want.
Staff Editor: Flynn Struckmann
Managing Editor: Aidan Fernandes
