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The High Cost of Low Fertility in Europe

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Author Info
David E. Bloom (Harvard School of Public Health)
David Canning (Harvard School of Public Health)
Günther Fink (Harvard School of Public Health)
Jocelyn E. Finlay (Harvard School of Public Health)

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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 high 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 immigration inflows. To illustrate these effects we construct a population accounting model and simulate steady-state outcomes. Regression analysis indicates the differing marginal effects of long-term fertility change in Europe versus the rest of the world.

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Paper provided by Program on the Global Demography of Aging in its series PGDA Working Papers with number 3208.

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Date of creation: Jun 2008
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Handle: RePEc:gdm:wpaper:3208

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Web page: http://www.hsph.harvard.edu/pgda
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Keywords: demography; growth; age structure; population; economy.;

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  1. Hans-Peter Kohler & Francesco C. Billari & José Antonio Ortega, 2002. "The Emergence of Lowest-Low Fertility in Europe During the 1990s," Population and Development Review, The Population Council, Inc., vol. 28(4), pages 641-680. [Downloadable!] (restricted)
  2. Bloom, David E. & Canning, David & Sevilla, Jaypee, 2004. "The Effect of Health on Economic Growth: A Production Function Approach," World Development, Elsevier, vol. 32(1), pages 1-13, January. [Downloadable!] (restricted)
  3. Alicia Adsera, 2006. "An Economic Analysis of the Gap Between Desired and Actual Fertility: The Case of Spain," Review of Economics of the Household, Springer, vol. 4(1), pages 75-95, 03. [Downloadable!] (restricted)
  4. David E. Bloom & David Canning & Günther Fink & Jocelyn E. Finlay, 2007. "Fertility, Female Labor Force Participation, and the Demographic Dividend," NBER Working Papers 13583, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
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  6. Gary S. Becker & Edward L. Glaeser & Kevin M. Murphy, 1999. "Population and Economic Growth," American Economic Review, American Economic Association, vol. 89(2), pages 145-149, May. [Downloadable!] (restricted)
  7. Anders Björklund, 2006. "Does family policy affect fertility?," Journal of Population Economics, Springer, vol. 19(1), pages 3-24, February. [Downloadable!] (restricted)
  8. Deardorff, Alan V, 1976. "The Optimum Growth Rate for Population: Comment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 510-15, June. [Downloadable!] (restricted)
  9. Jonathan Gruber & David A. Wise, 2002. "Social Security Programs and Retirement Around the World: Micro Estimation," NBER Working Papers 9407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Raquel Fernández & Alessandra Fogli, 2006. "Fertility: The Role of Culture and Family Experience," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 552-561, 04-05. [Downloadable!] (restricted)
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  11. Gruber, Jonathan & Wise, David, 1998. "Social Security and Retirement: An International Comparison," American Economic Review, American Economic Association, vol. 88(2), pages 158-63, May. [Downloadable!] (restricted)
  12. Lonnie W. Aarssen, 2005. "Why Is Fertility Lower in Wealthier Countries? The Role of Relaxed Fertility-Selection," Population and Development Review, The Population Council, Inc., vol. 31(1), pages 113-126. [Downloadable!] (restricted)
  13. Bruce Sacerdote & James Feyrer, 2008. "Will the Stork Return to Europe and Japan? Understanding Fertility Within Developed Nations," NBER Working Papers 14114, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(05), pages 813-843, October. [Downloadable!]
  15. Bloom, David E. & Canning, David & Fink, Gunther & Finlay, Jocelyn E., 2007. "Does age structure forecast economic growth?," International Journal of Forecasting, Elsevier, vol. 23(4), pages 569-585. [Downloadable!] (restricted)
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  16. Kelley, Allen C. & Schmidt, Robert M., 1995. "Aggregate Population and Economic Growth Correlations: The Role of the Components of Demographic Change," Working Papers 95-37, Duke University, Department of Economics. [Downloadable!]
  17. Oded Galor & David N. Weil, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September. [Downloadable!] (restricted)
  18. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December. [Downloadable!] (restricted)
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  19. Samuelson, Paul A, 1976. "The Optimum Growth Rate for Population: Agreement and Evaluations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 516-25, June. [Downloadable!] (restricted)
  20. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Bloom, David E. & Canning, David & Mansfield, Richard K. & Moore, Michael, 2007. "Demographic change, social security systems, and savings," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 92-114, January. [Downloadable!] (restricted)
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  22. Galor, Oded & Weil, David, 1999. "From Malthusian Stagnation to Modern Growth," CEPR Discussion Papers 2082, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  23. Hondroyiannis, George & Papapetrou, Evangelia, 2005. "Fertility and output in Europe: new evidence from panel cointegration analysis," Journal of Policy Modeling, Elsevier, vol. 27(2), pages 143-156, March. [Downloadable!] (restricted)
  24. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
  25. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD, Economics Department. [Downloadable!]
  26. Daron Acemoglu & Simon Johnson, 2007. "Disease and Development: The Effect of Life Expectancy on Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 925-985, December. [Downloadable!] (restricted)
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  27. Isaac Ehrlich & Jinyoung Kim, 2007. "Has Social Security Influenced Family Formation and Fertility in OECD Countries? An Economic and Econometric Analysis," NBER Working Papers 12869, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  28. Kelley, Allen C, 1988. "Economic Consequences of Population Change in the Third World," Journal of Economic Literature, American Economic Association, vol. 26(4), pages 1685-1728, December. [Downloadable!] (restricted)
  29. Bloom, David E. & Freeman, Richard B., 1988. "Economic development and the timing and components of population growth," Journal of Policy Modeling, Elsevier, vol. 10(1), pages 57-81, April. [Downloadable!] (restricted)
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  30. David E. Bloom & David Canning & Günther Fink & Jocelyn Finlay, 2007. "Realizing the Demographic Dividend: Is Africa any different?," PGDA Working Papers 2307, Program on the Global Demography of Aging. [Downloadable!]
  31. Samuelson, Paul A, 1975. "The Optimum Growth Rate for Population," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(3), pages 531-38, October. [Downloadable!] (restricted)
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