Working Paper: NBER ID: w14820
Authors: David E. Bloom; David Canning; Gnther Fink; Jocelyn E. Finlay
Abstract: We analyze the effect of fertility on income per capita with a particular focus on the experience of Europe. For European countries with below-replacement fertility, the cost of continued low fertility will only be observed in the long run. We show that in the short run, a fall in the fertility rate will lower the youth dependency ratio and increase the working-age share, thus raising income per capita. In the long run, however, the burden of old-age dependency dominates the youth dependency decline, and continued low fertility will lead to small working-age shares in the absence of large migration inflows. We show that the currently very high working-age shares generated by the recent declines in fertility and migration inflows are not sustainable, and that significant drops in the relative size of the working-age population should be expected. Without substantial adjustments in labor force participation or migration policies, the potential negative repercussions on the European economy are large.
Keywords: fertility; economic growth; income per capita; demographic transition; age structure
JEL Codes: J13; J21; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in fertility (J13) | decrease in youth dependency ratio (J13) |
| Decline in fertility (J13) | increase in working-age share (J29) |
| decrease in youth dependency ratio and increase in working-age share (J19) | higher income per capita (P17) |
| below-replacement fertility (J13) | burden of old-age dependency increases (J14) |
| burden of old-age dependency increases (J14) | decrease in working-age share (J21) |
| decrease in working-age share (J21) | lower income per capita (D31) |
| Migration inflows (F22) | sustain working-age shares (J29) |
| various demographic, social, and political factors (J19) | shape long-term effects of fertility on economic growth (J19) |