Thursday, November 30, 2006

Sweden, Pro-Natalism, Baby Booms and Demographic Transitions, Continued

by Edward Hugh

This is a continuation of my last post, since looking again at what I said, and examining the Swedish experience a bit more closely, I think I may have overdone things a little. This point was made clear to me by a comment from Stefan Geens who drew attention to the rather complicated picture which the Swedish case offers us. The core of the problem is to be found in this statement from Mark Ammerman:

"Despite all the effort Sweden has never since then risen over or even near replacement fertility."

Now as Stefan points out, this statement, as it stands is too strong, and undoubtedly an oversimplification. In support of his assertion Stefan points us to an earlier post on his blog which examined the recent evolution of Sweden's population, and he draws attention to the fact that the number of live births in Sweden has been rising steadily since 1999. In fact detailed information on live births and deaths in Sweden can be found on this page.

Now as I point out to Stefan in comments, one of the problems in looking at this data is to get an accurate measure of what it actually means in terms of the issue which concerns us here, replacement rate fertility. This is normally considered to be a fertility rate of 2.1tfr, but it is just here that we find the problem since TFRs may not be an accurate enough measure of completed fertility, and in particular during periods of rapid birth postponement when many women displace having children to ever later ages.

The total fertility rate is a measure of periodic fertility and uses the sum of the number of children born by women in a specific age (between 16-49) during a given time period in relation to the total number of women in the age group to make an estimate of the fertility rate. The cohort fertility rate (CFR) is a much more accurate measure since it is based on the average number of children which women give birth to during their entire lifetime fertility cycle. Now CFR is important since it measures whether the completed fertility for women is above the replacement level or not, but it has the important disadvantage that it becomes available only after women in any given cohort have completed their fertile life, and in periods of significant fertility fluctuation may reflect more what WAS happening, rather than what the current situation is.

In Sweden, for example, the latest available data is for the 1955-1959 cohort, but we may be rather interested in how fertilty behaviour may have changed when this group is compared with the behaviour of those born in the years 1965-69. Since data for this cohort only becomes available around 2015 this means that it is hard to take policy decisions based on CFRs, or, at least, it is possible, but important details may be missed, and hence the fairly widespread use of TFRs to try and get a handle on the process of fertility change.

To cut a long story short the reading on CFRs for Sweden to date have been not far short of replacement level, since they have been around the 2.0 mark. See, for example, this paper:

Why does Sweden have such high fertility?

By current European standards, Sweden has had a relatively high fertility in recent decades. During the 1980s and 1990s, the annual Total Fertility Rate (TFR) for Sweden undulated considerably around a level just under 1.8, which is a bit lower than the corresponding level in France and well above the level in West Germany. (In 2004 the Swedish TFR reached 1.76 on an upward trend.) The Swedish completed Cohort Fertility Rate (CFR) was rather constant at 2 for the cohorts that produced children in the same period; for France it stayed around 2.1 while the West-German CFR was lower and declined regularly to around 1.6.

So if the question we want to answer is: does Sweden currently have replacement (or near replacement) fertility, the only honest answer is that we don't really know. Having said that it does appear that Mark's original statement is a bit too strong, even if the current cohorts do not turn in replacement level fertility, they may well be not too far short of it.

So, in completing my mea culpa, I would make the following points:

1/ The important issue which I wanted to stress was that what we are dealing with here is not a simple boom-bust phenomenon, but rather a steady and continuous decline in fertility, which (if we strip out the US and Israel) seems to have taken place across the entire developed world, and which is now also rapidly occuring in the parts of the third world which are developing economically. In this context many countries which understandably seek to place an emphasis on reducing their fertility to replacement levels will almost certainly find it difficult to stop the decline at that point, and will in all probability move to fertility levels which are well below replacement level.

2/ Pro-natalism is important, but even in the society where most effort has been placed on a systematic pro-natal welfare system sustaining fertility at replacement levels has not proved easy (if indeed it has in fact been achieved).

3/ The quantity of resources necessary for the kind of policy Sweden has pursued are significant, and whilst they may be feasible in a comparatively rich society like Sweden, with a high level of awareness of the issues involved, introducing such a policy and devoting the quantity of resources required in less economically affluent societies, and in particular in the context of the situation that below replacement fertility and rapid increases in life expectancy both tend to occur simultaneously, will not be easy. Simple lump-sum cash payments - which of course are not unwelcome - are unlikely to make a substantial impact and in particular not in those societies which have already fallen below the 1.5tfr level.

4/ The Swedish (and Scandinavian in general) case also draws our attention to the critical difference between those societies with "near replacement" fertility (where pyramid sustainability is not resolved, but at least the relatively higher fertility makes the transition easier) and those who have fallen into the lowest-low fertility category. The need to avoid the critical drop below a TFR of 1.5 cannot be over-emphasised. Many societies already find themselves in this uncomfortable position (and the list of these is a lot longer than many imagine, including most of Souther Europe, Eastern Europe, the Asian Tigers, Japan and now possibly China), but it is important to try and prevent others meeting the same fate, which is why there is an urgent need in the developing third world to draw attention to the urgency of putting pro-natalist policies in place as these societies approach replacement level. The lesson of Southern Europe and the Tigers seems to be that if you do not do this you will almost certainly overshoot and find yourself in the lowest-low category. Bottom line: in trying to raise this awareness the Swedish model is, in fact, not without some importance.

Tuesday, November 28, 2006

Sweden, Pro-Natalism, Baby Booms and Demographic Transitions

by Edward Hugh

A commentor on my Bonobo Land blog has been poking around the fertility issue and coming up with some interesting points. Now I'm sure Mark Ammerman is far from being in 100% agreement with what I am saying in general about fertility, but he is making what seems to me to be a genuine attempt to sort out for himself what it is that actually lies behind the phenomenon of low fertility.

Now if we start with a point made in a link Stefan Geens put up (as also mentioned by Claus yesterday):

The current baby boom-bust cycle implies severe welfare losses for the baby boom generations, even under optimal policy.

Now this is one interpretation of what is happening, we have a baby boom-bust process. But as Ben Bernanke indicated in a recent speech (as linked to here, and as elaborated on even further by Claus):

This coming demographic transition is the result both of the reduction in fertility that followed the post-World War II baby boom and of ongoing increases in life expectancy. Although demographers expect U.S. fertility rates to remain close to current levels for the foreseeable future, life expectancy is projected to continue rising. As a consequence, the anticipated increase in the share of the population aged sixty-five or older is not simply the result of the retirement of the baby boomers; the "pig in a python" image often used to describe the effects of that generation on U.S. demographics is misleading. Instead, over the next few decades the U.S. population is expected to become progressively older and remain so, even as the baby-boom generation passes from the scene.

So what we have is not a boom-bust but a continuous and ongoing transition wherein below fertility replacement and increasing life expectancy combine to steadily push up population median ages (of course the US currently has more or less replacement level fertility, but this is just one of the issues which worries Mark - who is a US citizen - how sustainable is this given the fact that the relatively high Latino fertility may well fall at some point?).

So Mark has found himself getting into a number of issues which are of interest to us here at Demography Matters, and this will be the first of two posts which discuss these issues.

Mark has been scratching around and has come up with the point that in fact fertility in Sweden (as in France) first went below replacement level in the 1930s, but that the extent of the problem which was about to arrive was in fact *masked* by the existence of the baby boom in the post war world and not created by it.

From here on in, until I indicate, it is mark who is talking:

"Sweden seems a good empical test of what laws favoring mothers can do. quoting the author, Allan Carlson:

"The Myrdals fleshed out this program in their best selling 1934 book, Crisis in the Population Question, a brilliantly argued volume which substantially transformed Sweden. While Swedish conservatives continued to fret over sexual immorality, the Myrdals pointed directly at the contradictions created by an incomplete welfare state. Prior government actions such as mandatory school attendance, the ban on child labor, and state old age pensions, they admitted, had stripped away the value of children to parents. But the costs of children remained at home. In consequence, children had now become the chief cause of poverty. Given the incentives set up by the state, the very persons who contributed the most to the nation's survival by having children were dragged down into poverty, shoddy housing, poor nutrition, and limited recreational opportunities. A voluntary choice between poverty with children or a higher living standard without them was what young couples now faced. Young adults were forced to support the retired and the needy through the state's welfare system, and also the children to which they gave life. Under this multiple burden, they had chosen to reduce their number of children as the only factor over which they had control."

"If we are to believe Carlson's account, and I see no reason not to, the real motivation for Sweden's "universal state allowances for children's clothing, a universal health insurance plan, a universal entitlement to day care, state-operated summer camps for children, free school breakfasts and lunches, state-funded family housing, birth bonuses to cover the indirect costs of having babies, marriage loans, the expansion of state maternity and midwife services," etc., was to encourage people to have babies."

"So already in the 30s Sweden had this problem and were struggling with it mightily. I'm sure this the only example we have of seventy years of trying to deal with the problem. Despite all the effort Sweden has never since then risen over or even near replacement fertility."

"Although Sweden today has a higher fertility than most of europe, they also have a significant immigrant population. Without knowing the fertility rate of ethnic swedes we can't put a number on how effective the fertility promotion effort has been. Since the swedish government refuses to collect that information it hints that the situation is probably not good."

OK, now its me again (Edward).

Now I think Mark is absolutely spot on here. This is a problem which was identified 70 odd years ago, and which social policy (in the pro-natalist sense) has failed to resolve. So this is something we need to come to terms with.

It is also worth noting that Nobel Economist Gunnar Myrdal was the first to really start to investigate the *economic consequences* of declining and ageing populations (in the so called Godkin Lectures, the most economically relevant of which I have online here) and people in Japan would do well to go and read this if they want to understand why consumption is currently so weak there. Myrdal got though to this at the end of the 1930s, but as I said, the baby boom sent everyone astray and economic theory effectively lost 70 years when the issue could have been conceptualized and policies developed to enable the transition to be lived with less rather than greater difficulty.

Well I would like to thank Mark for being stubborn and digging around (even while not agreeing with me) and coming up with this most interesting of arguments. Of course, what we can now do is either follow the example of Marcel Proust, and go off in search of lost time, or we can make the best of what we have, and get down to the still outstanding task of coming to terms with the issue. This is what I suggest we do.

Meantime more arguments from Mark tomorrow.

Saturday, November 25, 2006

Sharing Demographic Risk - Hedging our Bets?

Update: I have completely missed the fact that Felix Salmon actually has handed over his blog to Stefan Geens for a couple of weeks. This of course means that I cannot quote Felix below because he in fact is not the author :), the post has been corrected accordingly.

One of the many effects of the current demographic transition and subsequent ageing (rising longevity is the one to watch out for here!) is that pension funds are looking to new ways to meet their growing obligations; I mean why won't people just die eh?

However, what if they could trade that risk through a derivative? Nonsense you say? Far from it actually ...

(The FT reports - hat tip Stefan Geens (guestblogger over at RGE's Felix Salmon))

London is set to become the centre of a potentially huge new global market in trading so-called “longevity” risk faced by pension funds, industry experts predict.

Leading investment banks and insurance companies are working on the design of new securities expected to be launched next year. The moves come as the pension industry is frantically looking for ways to meet its growing obligations.


David Blake, professor of pension economics at City University, forecast the new market would eventually outstrip credit derivatives, which have ballooned to $26,000bn. “The potential is enormous and it will start to happen very soon.”

Stefan even takes it a step further musing about hedging against low fertility;

The idea of trading in demographic risk as a way of sharing it is intriguing. But if you can trade in longevity, why not trade in fertility as well? Can we soon expect financial instruments derived from fertility rates, so that institutions can insure against people not being born, in addition to not dying?

Of course the interesting thing here is the market trend of this potential new market. It is huge as a function of the sustained demographic transition (rising longevity) we are witnessing almost all around the world. More in tune with the traditional postings here at DM Stefan ends his post by pointing us to a paper by Alexander Ludwigy and Michael Reiterz focusing on Germany and how to share demographic (intergenerational) risk in the reform process of pension systems. The paper will probably demand more attention at a later point but for now I will leave you with the conclusion (as quoted by Stefan).

The current baby boom-bust cycle implies severe welfare losses for the baby boom generations, even under optimal policy. Our calculations are based on some relatively pessimistic assumptions (no immigration, low fertility rate for a very long time, high labor supply distortion forever). In this case, the baby boomers loose the equivalent of about 5 percent of lifetime consumption, compared to a steady state with constant population.

Thursday, November 23, 2006

Serbia's Economy

by Edward Hugh

This post is prompted by a comment from Alexei on my earlier post about Serbia's severe demographic problems. I am only digging into Serbia a little bit to give an illustration of a far more general problem, one which, as I say, implicitly affects a whole swathe of countries: Croatia, Macedonia, Moldova, Ukraine, Georgia, Armenia etc. All these countries face, in addition to all the known demographic problems which face each and every one of the 'transition countries', the added difficulty of being excluded from the European Union. Unfortunately with the current climate towards enlargement inside the EU this situation is unlikely to change much in the near future, and these are likely to be critical years in the demographic history of these countries as the full weight of the second stage of the demographic transition - low fertility and medically driven extensions in life expectancy - comes increasingly to exert an effect.

As a point of entry to this problem it is well worth casting a quick glance over the two demographic maps which can be found in the first article (by demographer Nikolai Botev) in this collection (Total European fertility rates and Mean age at first birth). What can rapidly be seen is that Eastern Europe has the very unusual combination of both very low fertility and comparatively low first birth ages (in the Serbian case this currently seems to be somewhere round 25). Now what we do know is that in modern developed economies this age seems to trend upwards, slowly and inexorably, towards the 30 years of age range. There is no special mystery about this process, since by and large it is associated with the high levels of human capital accumulation which are needed to operate in the higher income ranges in the new services based information economy. To the extent that this phenomenon then affects wider social layers there is also a 'copy-cat' process to be observed. Either way the result is the same: higher first birth ages. There is no counter-evidence to be found of societies who move in the opposite direction.

So eastern Europe is set to experience a continuing process of rising first birth ages, this is also likely to last for a good number of years, and during this process one outcome is guaranteed: a continuing birth dearth as people postpone having children. In many ways these countries are now firmly set between the proverbial rock and the hard place, as they badly need to raise the level of their economic 'net worth' and yet in order to achieve this objective they are only likely to produce less and less children, which means the structural problems in their population pyramids can only deteriorate.

As I say, those excluded from the EU can only expect an even worse variant on this process, since they are very unlikely to experience significant inward migration, while young people from those countries can be expected to leave in search of work in ever growing numbers. The main problem is that many people, and Alexei is more or less typical here, are in complete denial on the importance of all this. It is 'carry on regardless' mode all round, and this failure to even begin to address the issue only means that the problem gets worse.

Typical of this approach is a recent article which appeared in the Financial Times by Anders Aslund (full text here). Now Aslund - who wishes to contrast what he considers to be the rather better economic performance of the non-EU Eastern countries with the malaise affecting those who have joined the union (he obviously hasn't read the IMF staff paper linked to below) - argues the following:

Central Europe’s economic results are impressive only by European Union standards. From 2000 to 2005, Poland, the Czech Republic, Slovakia and Hungary grew on average by 4 per cent a year, compared with 8 per cent a year in the 15 former Soviet republics. Even in this boom year, central Europe will grow by 5 per cent, while the former Soviet Union comes close to 9 per cent. Star performers are Armenia, Azerbaijan and Kazakhstan.

However, as he also notes, these countries are poor, and their principal priority is to grow:

Barely half as wealthy as the west European countries, the central European nations need to grow more than twice as fast to converge with them.


The absence of convergence breeds a sense of permanent backwardness. Unemployment remains high at 15 per cent in Poland. Budget deficits have been abundant, ballooning to 10 per cent of gross domestic product in Hungary. Apart from Slovakia, none of these countries has reformed significantly in the past half decade.....In a prescient paper of 1996, Jeffrey Sachs and Andrew Warner warned that the central European countries would not converge economically with western Europe if they did not cut their high taxes, reduce their excessive social transfers and deregulate their labour markets. A decade later, their public expenditures linger at 46 per cent of GDP, the EU average.

Now Asland would blame political pressures associated with EU membership for what he perceives to be the current 'malaise', but there is a significant factor he fails to mention at any point here: their demographics. Not only do these countries face rising health and pensions expenditures as their populations age rapidly (some indication of how this is affecting Hungary can be seen here, and here) but they also need to invest resources on pro-natalist policies, all of which make the low tax, low social spending scenario virtually impossible to maintain politically. And even if it is maintained these countries then face the problem of additional population shrinkage as the young people are forced to venture abroad to seek the higher wages on offer elsewhere simply to send money home to maintain their elderly relatives. The negative feedback effects of pension and welfare reforms just aren't being factored-in in some economic analyzes.


Two-thirds of the much higher growth in the former Soviet countries can be explained by their far lower public expenditures. The only other significant factor is the high world prices for oil. The ex-Soviet countries have become part of the high-growth belt from China via India to the Baltics and they look to the economic models of east Asia, with low taxes, limited social transfers and free labour markets, rather than the EU.

All of this may well be true, but it fails to address the key issues of the future, which is that this low expenditure is not sustainable, and indeed to blame the public finance pressure simply on 'irresponsible governments' is to miss the central point about what is happening:

Central Europe’s problem is not political instability. Until recently, it had relatively stable, but irresponsible governments, which did little while their economic problems deepened. The recent political turmoil in central Europe may be welcomed as a wake-up call. The Baltic countries are maintaining their stellar economic performance by changing government once a year.

In 1992, the grand old Hungarian economist János Kornai noticed that the central European states had developed a premature west European social welfare system. Their prime dilemma is economic and a general EU problem. Like the EU, central Europe needs to overcome its poor economic dynamism through lower taxes, reduced social transfers and freer labour markets. Possible cures are increasing tax competition from the east and freer labour migration within the EU.

As can be seen demographic denial comes at a price: total ignorance about what is actually happening! Of course Anders is right in one sense, good governance is important and necessary for stable economic development, but he would do well to take a quick look at just where the countries he so favourably cites are to be found in the recently published Economist Intelligence Unit Democracy Index.

Now for Serbia. The most recent summary of the Serbian situation is the October 2006 IMF selected issues Serbia paper, from which I will now freely quote:

Serbia has made significant economic progress since 2000. Output is up 40 percent and the share of the private sector in non-agricultural non-budget employment has almost doubled to around 60 percent. These advances have reversed the decline of the previous two decades. In light of this progress, these notes aim to shed light on the challenges ahead.

Of course it is important to remember here that back in 2000 the Serbian economy was virtually in ruins, so climbing back up was not so difficult, it is what comes next which is important:

With capital formation rates regionally low and employment reportedly falling, much of the economic recovery since 2000 has reflected growth in total factor productivity. In part, this is the dividend of corporate reforms which have increased efficiency. But even with the exceptional steel investment in 2004, Serbia’s investment ratios are well below those in other transition countries. Even allowing for data quality uncertainties, these investment patterns raise questions about the sustainability of Serbia’s recent economic growth. The note infers that these investment patterns indicate that a significant further reform agenda—ranging from improved business and political climates, to bankruptcy and privatization—still lies ahead.

and on employment:

With the unemployment rate at 21 percent and rising, employment reportedly in trend decline, and future restructuring set to result in further layoffs, the issues are challenging. The note is exploratory, suggesting lines of enquiry rather than firm conclusions about the way ahead. It reports that the employment structure has shifted to the private sector, but cautions that data are not yet conclusive as to whether this is re-classification due to privatization or whether private firms are creating new jobs. It suggests that Serbia’s labor institutions could be reassessed in view of the high and rising unemployment, including the complex wage setting mechanisms in the public sector inherited from the Yugoslav era.

Also note the rapid growth of credit, especially to unhedged borrowers (shades of the Hungarian disease):

With rapid credit growth one of the consequences of earlier reform, notably of the banking system, the 2005 FSAP pointed to the need to strengthen banking regulation. Given that the 2005 banking law brought the legal regulatory framework largely in line with Basel Core Principles, this note emphasizes that the key challenge now is implementation. It notes that credit, which is largely fx-indexed lending to unhedged borrowers, requires strengthened regulatory capacity to monitor and manage indirect credit risk arising from foreign exchange exposures.

And note these two points from the Main Findings section:

In Serbia, the large current account deficit has been associated with relatively low investment ratios compared to other CEECs (except Bulgaria)—although data doubts remain.

Given Serbia’s large external debt, financing its large investment needs will require achieving higher national savings and attracting larger non-debt
creating flows.

and this:

Given these caveats, Serbia’s data suggests surprisingly high external deficits given lackluster fixed investment ratios. Such delinks are not without precedent—after 2001, the Czech Republic and Hungary both reported continued high external deficits while fixed investment ratios declined, in both cases reflecting weakening domestic savings rates. But overall, Serbia’s performance is unusual in degree—reporting large external deficits alongside low investment ratios.

Now Demography Matters is now primarily an economics weblog, so I won't dwell further on all of this (although anyone really interested in the details of Serbia's economic situation would do well to read the whole text). Suffice it to say that the situation is far from being an easy one. External debt, sustainable public finance, and high individual indebtedness all combine to make for a very difficult environment moving forward, and the additional problem of the 'demographic whammy' (which most observers don't even start to think about) would seem to mean that the future of this small but significant country would appear to be incredibly bleak.

Wednesday, November 22, 2006

Shrinking Serbia

by Edward Hugh

Associated press had a timely article earlier this week about the severe plight in which Serbia currently finds itself. The article in fact focuses on the geopolitics of the problem, but the underlying demographic situation makes the position even more perilous. First the politics:

Outbursts of nationalism are nothing new in Serbia, but the blustering graffiti in a Belgrade park belongs to a bygone era.

"On your knees before Serbs!" it demands.In June, Serbia lost access to the sparkling Adriatic coastline when its sister republic, Montenegro, gained statehood. This winter, it could lose the southern province of Kosovo if U.N.-brokered talks lead to independence as expected. As their nation relentlessly shrinks, Serbs — a fiercely proud people accustomed to ruling the roost in the Balkans — are slipping into despair."How do you like our cemetery?" businessman Zoran Djuric asks cynically, standing on a hill and sweeping his hand over the twinkling lights of the capital below.

A string of staggering setbacks began last spring, when the
European Union suspended pre-membership talks with the former Yugoslav republic for failing to arrest Gen. Ratko Mladic, the world's No. 1 war crimes fugitive long believed to be hiding here.

Geographic isolation came within weeks. Serbia-Montenegro dissolved when Montenegrins voted to break away from the union forged in 2002, leaving Serbia landlocked and alone.

Now, if independence comes to Kosovo and the ethnic Albanians former strongman
Slobodan Milosevic tried to crush, Serbia soon could suffer its greatest humiliation: losing a province many consider the heart of their ancient homeland.

"Psychologically, it's very difficult to face up to the fact that your country is shrinking," said Braca Grubacic, a Belgrade political analyst.

"Half the population knows that Kosovo is a lost cause," he added. "But what's worse is that we have a serious crisis of leadership. We don't know who we are or where we're going. There are no signs of hope or a future."

Well, OK, losing a large chunk of your country is a problem, but you can get over it can't you? Well not if your fertility is in the 1.5/1.6 Tfr region you can't, you are actually shrinking in every direction, both geographically and internally. The big problem is that having got left out of the European Union for political problems Serbia will now find it difficult to attract the kind of foreign investment it needs to develop economically, and get involved in all those highly productive activities which many assume will be the saving grace of ageing societies.

So shrinking, and bereft of high value generating economic activities the most likely outcome is that many young Serbians will find themselves compelled to migrate to within the frontiers of the European Union in search of more lucrative work. If this happens it will only give yet one more twist to the force of demographic implosion. I have already noted this phenomenon in the context of Belorus, but the issue is much more general, and likely to affect all those societies in the East which are currently outside the EU borders: Croatia, Moldova, Georgia, Armenia, Macedonia, Ukraine etc. The so-called Lynx societies (Europe's almost tigers, Latvia, Lithuania, Estonia, Hungary, Slovakia, Slovenia, Poland, the Czech Republic)) have a sizeable problem with low fertility and rapid ageing even with the benefit of investment, access to the EU market and in-migration from points further east, but the problems of the rest could become almost insurmountable, and we may become witness to disintegrating and disappearing countries, and this impression is only further re-inforced by the disappearance of the correlation between low-income and high fertility which we seem to be witnessing in the eastern European context. These societies have all seen fertility drop and stay down as economic conditions have steadily worsened.

The lowest-low fertility to be found in these societies also gives the lie to the idea that low fertility is somehow a product of affluent welfare societies, since almost all of these countries only plummeted down into below reproduction fertility *after* the welfare state collapsed. In fact the history of Sebian fertility is rather interesting in this regard, as Katarina Sedlecki and Mirjana Rasevic explain, in the paper I linked to yesterday:

Transition in fertility in Serbia (excluding Kosovo and Metohija) began during the closing decades of the nineteenth century. Total fertility rate of about 2,1 was measured as early as in the mid-1950s. As soon as in 1971 the rate was about 20% lower than the population replacement level. The rate was more or less stabilized over the next two decades. There is an obvious decline in the number of births across low fertility regions of Serbia in the 1990s. Between 1991 and 1999, total fertility rate in Serbia declined from 1,73 to 1,41. In 2000 and 2001 total fertility rate slightly increased, and in the period 2001-2004 remained stable at the level of about 1.50.

Tuesday, November 21, 2006

Demography in Atlanta

by Edward Hugh

I found this article in this morning's FT about Atlanta's plans to respond to the coming retirement of the baby-boomers interesting. Demographic issues in the United States have a much milder edge to those which are in evidence in many other parts of the globe, so it is revealing of something to see just how aware they are about the existence of the problem:

Atlanta leads fight to lure young and restless

A study published on Monday by the Metro Atlanta Chamber of Commerce showed that the city increased its share of the group – defined as university graduates aged 25-34 – faster than any other of the 50 largest metropolitan areas during the 1990s.

The study, conducted by a demographic research firm, was commissioned as part of efforts by Atlanta’s business community and civic leadership to develop a strategy for attracting young talent.

Sam Williams, president of the chamber, launched the initiative after noticing how availability of educated labour was becoming a bigger concern for businesses.

He recalls one company that was considering an investment in Atlanta asking: “We need 300 people with master’s degrees within three months. Are they there?”

Competition for talent is becoming increasingly fierce throughout the developed world as “baby-boomers” retire and birth rates decline. For decades, growth in higher education and increased labour participation by women provided rich seams of fresh talent. But those trends are starting to slow.

As supplies of the “young and restless” tighten, Atlanta’s study exposes disparities between cities that are successfully meeting the demographic challenge and others that are losing out.

Between 1990 and 2000, the period covered by the research, Atlanta increased its number of university-educated 25 to 34 year olds by 46 per cent, while its share of the nationwide group rose faster than any other city’s.

San Francisco and Denver registered the next biggest share gains, while Los Angeles and New York, which have the largest numbers of “young and restless”, suffered the biggest drops.

The Raleigh-Durham area of North Carolina had the highest percentage of the group among its population, reflecting the strength of its universities, followed by the cities of Boston and San Francisco.

In absolute terms, the “young and restless” followed broader shifts in the US population, with the biggest growth in numbers found in southern and western cities, and the biggest losses in north-eastern cities.

“As cities move increasingly into a knowledge-based economy, the kind of talented people each area attracts will determine whether it wins or loses in the campaign for future prosperity,” says a report issued with the study.

Attracting 25 to 34 year olds is “critical” because it is between those ages that people have the greatest flexibility to relocate.

Factors behind Atlanta’s success in wooing the “young and restless” include its relatively low cost of living, plentiful jobs in growing industries, popular universities, large airport, warm climate and diverse culture, says Mr Williams. In addition to deepening the talent pool available to businesses, he says the influx has made Atlanta more attractive to high-tech and creative enterprises and spurred entrepreneurial growth.

As I keep saying, whether we are talking about cities or about countries, there will be winners and losers here.

Monday, November 20, 2006

Low Fertility In Europe

by Edward Hugh

This collection of articles by the sexual and reproductive health section of the WHO will contain few surprises for regular readers of DM, but may well prove interesting for those who are less familiar with this topic (careful, PDF file and a very slow loader). Nonetheless there are also some interesting details.

The balance between ensuring female equality and trying to achieve reproduction levels of fertility is not always an easy one. As the editors of this collection say in their introduction:

As can be read from several of the articles in this issue of Entre Nous, upholding the reproductive rights of women and men, also in a European context, can be a challenge and several governments have led pro-natalist policies, which in some cases have been in conflict with ensuring reproductive rights.

The fact that many policy makers in Europe are following the development of the fertility trends closely is signified by the fact that several countries have established high-level national committees to evaluate the possibilities of changing the present demographic trends. For example President Vladimir Putin highlighted the demographic crisis of the Russian Federation in his state-of-the-nation address this year and has made it one of the countries highest priorities: ”First a lower death rate; second, an efficient migration policy; and third, a higher birth rate”.

This edition of Entre Nous is planned to assist policy makers to learn more about the general trends of fertility rates in Europe and the ways some countries are trying to respond to what by some is discussed as the ‘fertility crises’ through support to couples with children and to create family friendly environments. We have invited authors, specialist in this field from academic institutions, professional associations and UN agencies to discuss the role of the health care services in increasing the birth rates. The role of social factors is emphasized in many articles, and the national experts in the field present examples of the policies in countries from different parts of the European region.

The demographer Nikolai Botev, in the first article, offers a very useful summary of the issues of postponement, tempo and quantum effects etc. He also draws attention to how difficult it is to obtain a balance in pro-natalist policies:

Pro-natalist Policies: To Be or Not To Be

This Hamletian question has been on the minds of many policy-makers in Europe. Attitudes towards, and traditions in interventions to influence birth rates vary across Europe. France, a country that up to the Second World War had the lowest fertility in the world, has had a long-standing pro-natalist policy. A broad consensus across the political spectrum exists there around that policy and around the need for strong family support programmes. The policy in France includes, among other things, relatively generous family allowances, parental leave, tax breaks, and other incentives. According to many, the fact that France currently has one of the highest fertility levels in Europe is due to that policy. In general, however, the evidence about the success of such kind of policies is limited and there is an on-going debate about their efficacy and efficiency.

The communist regimes in Central and Eastern Europe also had a tradition of active pro-natalism. At different times, they used restrictions on abortions, or fiscal and other incentives to increase the birth rates. This reflected the fact that these regimes were much more likely to perceive policy intervention in private lives acceptable, and people were more likely to tolerate that. As a result, some of these policies created serious problems in the reproductive health field. The case with Ceausescu’s policies in the 1960s is probably the best-known example.

Nowadays, the concern about low fertility in some countries in Eastern Europe is fueled by nationalist and/or ethno-centric sentiments, and voices are often heard that favour measures to increase the birth rates at the expense of reproductive health and rights, and in detriment to women’s status. In the rest of Europe, governments have been guided by the understanding that it is the right of individuals to determine freely the number of children they have.

This is also worthy of note:

All this raises the issue of finding the most effective and efficient ways and means to react to the dramatic demographic changes in Europe. As pointed out earlier, the debate on that issue is still raging. Several broad points could be highlighted though: (1) policies narrowly focused on increasing birth rates are not likely to be successful; instead, demographic change needs to be addressed though comprehensive population policies (i.e. those that address all underlying processes, not just fertility), which in turn need to be an integral part of modern social polices; (2) two of the elements of these policies have to be programmes focusing on social integration of young people, particularly through youth employment, and on better reconciliation of work and family obligations; (3) consistency and continuity have to be among the primary characteristics of these policies – most observers agree that if French polices are to be considered successful, it is because they have been applied consistently over many decades; (4) these policies also need to be contextual, i.e. the mix of policy tools need to reflect the specific conditions and circumstances in a country; (5) they certainly need to be non-coercive, to respect the rights of individuals, and to be acceptable across a broad political spectrum; (6) last but not least, the policies need to be financially viable, i.e. they need to be within the fiscal capacity of a country in the long run – making commitments that are not sustainable financially runs the risk of jeopardizing economic growth and further aggravating the population situation in a country.

So there we have it. We are, as they say, between a rock and a hard place. But all in all the whole collection of articles is worth the read. Doubtless I will be returning to some of them.

Links Department

Here's a useful page I have just found: Global Health Facts. From the main page you can find all sorts of links to up-to-date and useful demographic data: median age, fertility, dependency ratios etc etc etc.

Wednesday, November 15, 2006

Message To Central Bankers: Target Median Ages!

by Edward Hugh

Central bankers are all in a flurry right now, since they don't seem to be any too sure what it is they should be targeting, inflation or monetary aggregates. Well I have one piece of advice for them: keep your eyes on both of these (provided that is you know how to interpret the signals) but add one more objective (or pillar) to your list - population median age.

Sounds daft, doesn't it? What a silly idea Edward!Well no actually, it isn't. And the fact that most people in the macroeconomic community haven't appreciated the role and importance of this metric is one of the principal reasons why many observers are at such a loss to understand what is happening in Germany and Japan right now, and why the proponents of the so-called 'Goldilocks' recovery are discovering that there just isn't enough honey in the pot to go round (obviously some of it was eaten by one of those bears I mentioned in the last post). For a brief introduction to the macroeconomics of this problem, see this post from Claus (and then drill as far down as you want, one thing is for sure, you won't reach Australia, since Australia isn't on the list of countries with a preoccupyingly high median age, at least not just yet it isn't, which is why over at the Australian central bank they may like to take note of what I am saying while there is still time).

Now why the hell should median ages be important? Well there are three sound macroeconomic reasons to think that they may well be:

1/. Consumption has some (variable, not precisely quantified) life cycle component. You can find some background to this by following the links on this wikipedia page to Francisco Modigliani who got the Nobel Prize for his ideas on this topic.

Basically the idea is that saving and consumption patterns vary across the life cycle, and this is just as true for populations as it is for individuals. The clearest evidence for this effect is coming from the relatively elderly societies (Italy, Germany and Japan) where domestic consumption consistently fails to show robust growth.

2/ This inability to maintain consumption growth in the elderly median age group has the consequence that these countries need to export to grow. Again, you can try this one from Claus, or if you want a more theoretical treatment you could try the paper Asymmetric Demography and Macroeconomic Interactions Across National Borders presented by Ralph Bryant at this Reserve Bank of Australia conference.

As Claus indicates this need to export is pretty obvious in the cases of Germany and Japan, where substantial surpluses are being run, but it is also becoming obvious in the case of Italy where the inability to run surpluses means that the public debt is spiralling out of control, since without export surpluses of sufficient magnitude there is insufficient growth to finance pension and health liabilities.

3/ Lastly median ages are important as they reflect the age distribution of the population, and the age distribution is important for productivity performance, as I explain in this post here.

So there is ample theoretical support for the idea that median ages have macroeconomic consequences and we can find empirical backing for this theoretical espectation in the relative performances of countries when they are examined according to median age. I would say that if a society has a 'golden age' in growth rate terms, then this age seems to be somewhere in the 33 to 38 age range, with Ireland and Iceland marking the bottom end of the register, Australia and the United States occupying the middle ground, and the UK and France being at the upper end. Perceptive readers will note that all these societies have experienced notable increases in property prices over the last cycle, indeed they are more or less the developed societies which have been most credit-driven, which is pretty logical really, since younger people are inclined to borrow more.

Below Ireland we have the wanna-be developing economies, most notably China, but also Thailand, Brazil, Turkey, Chile, India etc. Indeed more or less all the countries which are suddenly experiencing over-par economic growth have median ages in the 28 - 33 (demographic dividend) age range.

Then if we move on up, into the 40 - 43 age range we find countries which appear to be moving towards the rather more sclerotic internal consumer growth/congenital need to export/no housing boom group.

As I have already said, the three oldest countries - Japan (42.9), Germany (42.6) and Italy (42.2) - seem to share the common feature of slow GDP growth, weak internal demand growth, and an increasing dependence on exports to drive domestic growth. They also share the common problem of acute public finance pressure as they try to leverage there way out of paygo based pension systems at the same time as the population pyramid inverts.

So, at least in empirical terms, it might now be interesting to start to follow the next countries on the list - Finland (41.3), Bulgaria (40.8), Sweden (40.9), Belgium (40.9), Greece (40.8), Austria (40.9), Slovenia (40.6) - to try to examine whether or not this pattern is repeated.

Obviously the key parameters in play in determining median age are immigration, life expectancy and fertility, and median ages will move according to the movements in these three parameters.

On life expectancy all the above countries can expect this to drift upwards, so the upward movement in median ages will only be reinforced here, with evident differences from one country to another.

Only Greece, Bulgaria and Slovenia have lowest-low fertility (the rest are below replacement, but in the 1.7 - 1.9 range) so the others shouldn't expect much in the way of a fertility boost, and Bulgaria has been loosing so many young people of child bearing age (and seems set to lose more with EU accession) that it is hard to see any big impending rebound here.

Then there is immigration. This I think tends to be driven by job availability which is driven by economic growth. In the group Greece has been having substantial inward migration in the last years, so this may be important in changing the trajectory, if the growth can be sustained. But remember that Greece is another country with a very large debt/GDP ratio, and there will need to be fiscal tightening at some point. So the stellar growth factor isn't guaranteed.

Sweden and Finland may attract migrants, and they may do this at the expense of some of the Eastern European 'Lynx' economies (and maybe even at the expense of a country like Germany, if the Germans don't wake up soon), so this will be interesting to watch.

Belgium definitely seems to be pretty immigrant-hostile right now now, so unfortunately it looks set to go the way of Germany.

Bulgaria and Slovenia could easily suffer from strong out-migration, which will simply make the median age rise more rapidly. Indeed Bulgaria may already have a significantly higher median age than the official one, since there have undoubtedly been many more Bulgarians working out of the country than the government is prepared to admit.

And both of the above countries may obviously find themselves directly in the line of fire from events in Hungary in 2007 (in anticipation of which I have now started a new Hungary Economy Watch blog).

It will also be interesting to follow the evolution those countries who seem able to change course if they act in time, like Spain (39.9), Denmark (39.8), Netherlands (39.4), France (39.1), UK (39.3).

Again Spain is almost certainly younger than the official numbers indicate, since the recent immigration has been massive and is probably not yet reflected in the stats, and this immigration has undoubtedly fueled the recent housing boom in Spain.

Both the UK and France have it perfectly within their grasp to change course, especially given their capacity to assimilate immigrants (which some dispute in the French case I know, but I think there is plenty of room for debate here) and their relatively higher fertility.

Denmark and the Netherlands could, but the open hostility to immigrants you can often see in these countries seems to me to be a bit like shooting yourself in the foot (sorry Claus, but we will see). My guess is that as the fate of the 'leading group' becomes more and more apparent the climate will change rather dramatically in this regard.

Hungary, otoh, is still a little 'younger' (at least officially, 38.7) but this could also change dramatically if the economic situation there in 2007 sends people rocketing out. 175,000 Argentians came to Spain in 2002 alone, and a lot more young Argentinians obviously went elsewhere. So this is where macro-economics and demography definitely interact.

Lastly I would mention Switzerland, which while having a slightly lower median age (40.1) the the three oldest-old societies has long suffered from some of the macro consequences of ageing that I have been trying to spell out (eg they have had a virtual ZIRP approach to interest rates).

So what I am doing is sort of pointing to a research agenda. Maybe using median ages seems to some to be horribly simplistic, but it is amazing to me to see just how much you can explain with such a simple measure, and how little of what is happening can really be explained by its rivals. At the end of the day one of the things which is important about hypotheses is that they should be reasonably testable. I have made some tentative forecasts here. Now lets go and see what actually happens in the real world.

Bears and Wolves at the Door

by Edward Hugh

The ongoing demographic transition is likely to have consequences far beyond the already obvious ones. Some of these are only to be expected, like growing pressure on raw material and energy resources as large developing countries (India, China) get richer (the upside of the transition), others are less obvious, declining populations and growing urbanization, for example, mean that previously populated parts of the planet will become virtually uninhabited.

This 'desertization' phenomenon appears to be happening in some very surprising places take Japan for example

Scarce acorns, silent guns and rural depopulation are bringing Japan's bears out of the woods.

The number of Japanese black bears caught feasting in fields of sweet corn, apples and other crops has jumped this year, with the animals increasingly undisturbed by hunters, whose ranks are dwindling as the population ages.

"There are plenty of bears out there who've never even heard a gunshot, so if they do see people, they think it's OK not to run away," said Hidetake Hayashi of the Shinshu Black Bear Research Group, which monitors bears in Nagano prefecture.

The number of hunters in Japan has fallen from almost half a million in the late 1970s to about 150,000 in 2005, according to Dainihon Ryoyukai, the Japan hunters' association, so people might appear less intimidating to their ursine neighbours.

In Gifu prefecture, rangers have shot 121 bears since the start of April, six times as many as in the previous 12 months, the Yomiuri daily reported.

Gifu University's Professor Toshio Tsubota, who heads the Japan Bear Network, a nationwide body involved in bear research, said a skimpy acorn crop this year was the most likely cause of the rise in number of sightings. The shortage of their favourite food has forced the bears to seek other sustenance before hibernating at the end of autumn.

A longer-term reason was rural depopulation, Tsubota added. As fewer villagers venture into the woods to chop down trees for firewood, the border zone between forest and village has eroded. "The villages have thinned out," the Shinshu group's Hayashi said. "Bears may now think it's all right for them to be there."

More predictable is what is happening in Russia and Central Europe where it is once more wolf at the door time

WOLVES, wild boar and brown bears are moving west in Europe as nature takes hold of rural regions abandoned by people seeking work in the cities. Wildlife migration is shadowing human migration and, according to population experts, is set to transform the way we look at the Continent. Wild boar are already ransacking dustbins on the outskirts of Berlin and bears are startling schoolgirls in Austria.

Great swaths of Europe are surrendering to nature as human birthrates plunge and unemployment draws people into the big industrial hubs.

Stefan Kronert, a researcher at the Berlin Institute of Population and Development, said: “There is a kind of suction towards the metropolitan centres. People are leaving behind the old mines and quarries, farmland that can no longer be profitably harvested, and they forage for work.”

Europe will lose 41 million people by 2030 if today’s birthrates continue to languish at the present level. About 22 of the 25 countries with the lowest birthrate in the world are in Europe. Poor but rapidly changing countries such as Romania and Bulgaria are undergoing a quiet social revolution. And in its wake comes the wildlife.

Wolves disappeared from eastern Germany around 1850. Suddenly they are back. They started moving westwards, probably from the Carpathian Mountains, over the Neisse River, which divides Poland from Germany. The animals moved into the overgrown acres of artillery ranges and exercise grounds abandoned by the Soviet forces in Saxony.

The wolves feed off deer and are flourishing; two packs have already formed and biologists say that a third is taking shape.

The human population of eastern Germany, by contrast, is dwindling. Almost one million have left for western Germany since unification. Villages are dying out. One community, Horno, has been reduced to two people. They are hanging on, resisting an electricity company’s attempts to bulldoze their home in the search for coal.

Frank Mörschel, of the German branch of the World Wide Fund for Nature, said: “In the long run, we can count on wolves repopulating much of eastern Germany — as long as humans let it happen.”

Wolves are on the move throughout Europe and the reason is always the same: they sense a change in human behaviour. It became clear last year that Italian wolves were moving across the Alps to the French side. The mountainside sheep farmers in France were allowing their flocks to graze without protection. There was no choice; the young were leaving the villages and farming dynasties were dying out. The wolves saw their chance and crossed the border.

Across Europe, and across species, it is a similar story.

The Polish migrants arriving in Victoria bus station come mainly from eastern Poland, from tiny villages scattered along the Ukrainian frontier. They send money home to support their elderly relatives but ultimately the communities are doomed and are already shrinking. The wildlife, searching for food and minimal contact with humans, fills the vacated space.

In Slovenia, the brown bear population has risen to 700 — the second-largest after Romania — and they prowl the dense forest land of the Alpine republic. But the country is small and there are frequent confrontations with humans.

“The situation is so critical that in some villages kids need a bus to take them to a school only a kilometre or so away because they run into a bear virtually every day,” a senior official at the Slovene Agriculture Ministry said.

The bears are, almost certainly, more frightened than the pupils and so they have begun a migration into the Austrian province of Carinthia. There they have more space to roam and better chances to steal livestock. Most of the brown bears have come northwards from war-plagued Bosnia and Croatia in the 1990s. Now instead of fleeing war they are fleeing rapidly modernising Slovenia for the most depressed region of Austria.

Wildcats and ospreys are reasserting themselves across eastern Germany. Domestic cats left by families who have moved westwards are even crossbreeding with wildcats.

However, Dr Kronert said: “Don’t count on a major return to nature in western Germany. Even if the birthrate is going down there too, it is still too densely populated. The key areas are not even necessarily those on the borders with Eastern Europe. Look at the Prignitz, half way between Hamburg and Berlin — people are leaving in droves and the region is becoming more and more like a nature reserve.”

The most extraordinary wildlife area in Eastern Europe is probably the Danube delta, primarily because it was inhabited for centuries only by religious exiles, fishermen and lepers. It was on the very margins of Europe. Today the delta, in Romania, boasts 280 bird species including pelicans, egrets, whooper swans and rare wintering birds such as the red-breasted goose. The mammals include raccoon, mink and polecats. Tortoises, vipers and other poisonous snakes also inhabit the delta, which adjoins the Black Sea. This could be the future of other, more recently depopulated, regions.

Farmers’ young sons are leaving and not returning, and their parents are selling up to subsidise their pensions. The new purchasers often find it more profitable under the Common Agricultural Policy to let the land run wild rather than farm it. Woodland is growing back.

And so, bit by bit, the fringe Europe of impoverished and redundant farmers is becoming a pastoral idyll.

Tuesday, November 07, 2006

Angela Merkel and Social Security

by Edward Hugh

Far be it from me to take sides in the emerging political debate in Germany, but the FT has an article this morning which is very pertinent to the topics we have been recently discussing over here at DM, namely prioritisation of resources between the competing and often conflicting demands of young and old.

The issue is pitched in the FT as being one of labour market reform, but the key point seems to be one of whether to divert resources away from the younger unemployed to the over 50s:

Chancellor Angela Merkel’s Christian Democratic Union on Monday endorsed a proposal to increase unemployment benefits for older jobseekers, offering the most graphic illustration yet of a swing of the political pendulum away from structural reforms in Germany.

The proposal to link jobseekers’ benefits to the amount they contributed to the insurance scheme before losing their jobs is a U-turn from the unpopular labour market and social security reforms launched by Gerhard Schröder, Ms Merkel’s predecessor, in 2003.

As the FT notes this particular initiative from the CDU is unlikely to become government policy,but the mere fact it is being seriously advanced in and of itself raises a lot of issues, and in particular the issue, highlighted in this post here, about the extent to which the state as a provider of social insurance has a responsibility to its clients. But given that the transformation in the age pyramid means that this particular provider is now no longer able to meet its obligations, the big question is who should take the larger share of the inevitable 'haircut'?

The principal danger is that as our populations age our political systems gradually become more sensitive to the needs of the older part of the population, and that in yielding to the demands which understandably will come from this section of society, we cut the lifeline which can make even 'reformed' systems sustainable in the future. The outflow of young people from Germany which was highlighted in this post is but one indication of the looming problem. Politicians will remain deaf to this to the long run cost of all of us.

I would say the principal challenge facing mature democratic societies is the one of 'intergenerational' fairness, or how not to kill the goose which lays the golden eggs whilst honoring your commitments to those who have already paid to the best of your ability.

Friday, November 03, 2006

Pro-natalism that Works ... Evidence from Estonia?

Recently, many commenters here on DM has flagged the idea of pro-natalism (rather sloppy Wiki.Pedia article!) as a possible working solution for countries with low (lowest-low) fertility and more specifically lamented the absence of talk about this in the entries posted here at DM. This is consequently to make amends on this and to present some of the arguments pro and con pro-natalism as we have discussed them in the comments sections on various posts. Before we do this though let us look at a country in Eastern Europe with low fertility where pro-natalism actually seems to have worked at least given the initial evidence (hat tip to Stirling for pointing towards Estonia in the comments on a previous post). Lastly, before we dig into the description of Estonia it might usefull for you to acquaint yourself with the general demographic situation in Eastern Europe and more specifically EU-8 (the lynx economies). To that end, this post from my blog has some good initial references and description.

(From the WSJ; reproduced by, actually an excellent article!)

Estonia's wake-up call came in 2001, when the United Nations' annual world-population report showed that Estonia was one of the fastest-shrinking nations on earth, at risk of losing nearly half its 1.4 million people by mid-century. Estonia's fertility rate -- the average number of children a woman bears -- had collapsed to 1.3 in the late 1990s, down from 2.2 under communism only a decade earlier.

In an attempt to stop that downward spiral, Estonia took a bold step: In 2004 it began paying women to have babies. Working women who take time off after giving birth get their entire monthly income for up to 15 months, up to a ceiling of $1,560. Non-wage-earners get $200 a month. The welfare perk -- known locally as the "mother's salary" -- was a sharp about-face for the radically free-market government.

"Step by step, (the declining birthrate) became a danger to the survival of the nation, so we had to do something," says Paul-Eerik Rummo, minister for population affairs and a member of the Reform Party in Estonia's ruling coalition.

Now, two years into the program, the government is seeing some of the first tentative results. Since the adoption of the new benefits, Estonia's fertility rate has improved to 1.5. That's still below the 2.1 children needed to stop the population from shrinking (one child to replace each parent, plus some room to allow for child mortality). And it will take years to see the full impact of the mother's salary. But the apparent early success has inspired the government to look at other ways of getting people to have more children -- everything from subsidies for nannies to linking pension payments to the number of children one has.

This actually seems very positive and here at DM where dooming and glooming about the effects of declining population is the traditional and should I say natural menu we should indeed be optimistic here ... well done Estonia! However, what about other countries then and generally what would the initial outlook be for implementing pro-natalism as a general measure? This brings us to the point about my entry ... the pros and cons of pro-natalism and more importantly the issues to watch out for.

(Note that I am cruising on an intuitive level here since I have no formal textbook list of this; I hope the comments can help formalize this discussion)

Pros of pro-natalism

A Direct Measure - To the extent that fertility is a one of the biggest and most decisive factors in the demographic transition occuring in developed and semi-developed countries pro-natalism represents a very clear and direct valve by which to leverage policies to amend and affect the demographic situation.

A Direct Transmission Mechanism - Following the point above pro-natalism also consequently has the potential to display a very direct and effective transmission effect from the enacted policies and to the real effects on the demographic situation. This is of course a relative point since none of this would happen from one year to another (more about that below).

Cons of pro-natalism

Pro-natalism Costs - Pro-natalist measures are essentially behavioural fiscal measures in terms of public budget policy and as such they have a negative effect on a country's budget. This is of course pretty simple but as Edward has never tired of mentioning it is a crucial point to remember. We could think of this in terms of windows of opportunities. In order for pro-natalist measures to have a real effect and crucially to be fiscally sustainable they have to be enacted at a time where the society is actually capable of supporting the costs. As such pro-natalism cannot be enacted as a last-minute solution. Think about some of the developed countries really facing a dire demographic situation (Italy, Japan, and Germany) and take a look at the fiscal situation ... suddenly pro-natalism becomes a chance gone begging I would argue.

Pro-natalism is Counterproductive - Now I am borderlining on circular-reasoning I know since this is exactly what we want; that is pro-natalism should in fact be counterproductive to the trend of the quantum and tempo effect of declining fertility. However, this is still a real issue here and as I have argued in the comments sections of previous posts pro-natalism directed at the quantum effect alone is not a viable solution, particular not in developed countries where the female workforce is highly educated. The cost of making them sacrifice emancipation and sustained labour force participation in order to carry more children will be unrealistically high in many cases. In terms of the tempo effect this would more sense as a point of departure since inciting women to have children earlier would also have a lagged effect on the quantum effect. Moreover, addressing the tempo effect also has implications for the biological optimuum age for carrying children (Edward can add substantially to this).

Pro-natalism needs to be sustained - This is more an issue to watch out for than an actual 'con' but it is clear that any pro-natalist measure needs to be sustained over a given period of time or in demographic terms over several cohorts. A mere blip on the radar will not do and in short pro-natalism needs, to some extent at least, to be institutionalized as a structural mechanism. Why is this important? This is important because the very issue we are trying to combat (low fertility) itself is a structural and institutionalized trend in the developed world as a result of increased female labour participation and birth postponement operationalized more accurately through the quatum and tempo effect of fertility.


This was a first attempt to try to conceptualize the idea of pro-natalism here on DM and if there is one thing I wish you should take away from this it is that making pro-natalism to work is not a straightforward issue. In fact, as we dig deeper into the issues the waters get increasingly more murky and muddier. This is not to say though that we should not consider it and for the reasons mentioned above this remains one of the most potentially effective measures we have to reverse the demographic decline in many countries.