Population decline: Bane and Boon for the economy


From UPSC perspective, the following things are important :

Prelims level : Replacement rate

Mains level : Paper 3- Why declining population is not always a problem

Deflation. A recent (2014) study found substantial deflationary pressures from Japan’s ageing populationThe article argues that a decline in population is not always as worrisome as it is made to be.

Declining fertility rate

  • China’s fertility rate of 1.3 children per woman in 2020 is well below replacement level, but so, too, are fertility rates in every rich country.
  • In all developed economies, fertility rates fell below replacement in the 1970s or 1980s and have stayed there.
  • In India, more prosperous states have fertility rates below replacement level, with only the poorer states of Bihar and Uttar Pradesh still well above.
  • And while the national rate in 2018 was still 2.2, the Indian National Family Health Survey finds that Indian women would like to have, on average, 1.8 children.
  • In all prosperous countries where women are well educated and free to choose whether and when to have children, fertility rates fall significantly below replacement levels.
  • If those conditions spread across the world, the global population will eventually decline.

Is the declining population good or bad for the economy

  • A pervasive conventional bias assumes that population decline must be a bad thing.
  • But while absolute economic growth is bound to fall as populations stabilise and then decline, it is the income per capita that matters for prosperity and economic opportunity.
  • It is true that when populations no longer grow, there are fewer workers per retiree, and healthcare costs rise as a percent of GDP.
  • But that is offset by the reduced need for infrastructure and housing investment to support a growing population.
  • A stable and eventually falling global population would make it easier to cut greenhouse-gas emissions to avoid climate change, and alleviate the pressure that growing populations inevitably place on biodiversity and fragile ecosystems.
  • And contracting workforces create stronger incentives for businesses to automate while driving up real wages, which, unlike absolute economic growth, are what really matter to ordinary citizen.
  • In a world where technology enables us to automate ever more jobs, the far bigger problem is too many potential workers, not too few.
  • Even when the Indian economy grows rapidly, its highly productive “organised sector” of about 80 million workers, fails to create additional jobs.
  • Growth in the potential workforce simply swells the huge “informal sector” army of unemployed and underemployed people.

So, when declining populations turns to be a problem?

  •  Fertility rates far below replacement level create significant challenges, and China may well be heading in that direction.
  • At those rates, population decline will be precipitate rather than gradual.
  • If Korea’s (fertility rate 1.09) birth rate does not rise, its population could fall from 51 million today to 27 million by 2100, and the ratio of retirees to workers will reach levels that no amount of automation can offset.


The average fertility rates well below replacement level in all developed countries, and, over time, gradually falling populations. The sooner that is true worldwide, the better for everyone.

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