In more than half of the world's countries, the number of babies being born has fallen below the replacement rate. For the next generation, that means living in a less-populous country than their parents—and that gives birth to some big problems. Not only will the bill for their ageing parents’ care be shared between fewer people, but there will be a smaller pool of potential entrepreneurs and innovators to create jobs and come up with big ideas for society. 
On this week’s podcast, hosts Mike Bird, Alice Fulwood and Tom Lee-Devlin ask whether shifting demographics are pushing the world towards the mother of all economic slumps. 
Matthias Doepke, a professor at London School of Economics, warns there is no quick fix. Demographics expert James Liang, explains how a shrinking population stifles innovation.
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In South Korea's capital city, seeing a child out and about is something of a rarity.

If a kid cries on the train, everyone would be like, oh, that's very rare.

Hyun Shin is a journalist for The Economist based in Korea.

Old people would go to the parent and say, good job.

South Korea's birth rate is the lowest in the world.

On its current trajectory, the population is expected to fall by more than half, to just 24 million, by the year

Hyun has been documenting the visible effects of her country's ageing population.

For starters, between 2018 and 2023, more than 150 schools have closed down nationally.

Buildings once used for child care have been repurposed for an older clientele.

A lot of them turned into nursing homes because the nurseries already had the facilities, such as safety locks for the bathrooms.

So my grandparents' friends used to complain how small the tables were because they used the same tables in the nurseries.

South Korea is still an outlier in the extent of its swift fertility crash, but this somewhat grim picture might not be so unique for long.

countries and territories around the world had birth rates low enough to lead to a shrinking population.

This kind of low fertility is going to be economically damaging.

As populations age, it means growing bills for pensions and healthcare, with fewer young workers to pay for it all.

Other drivers of economic growth, like entrepreneurship and innovation, can take a hit as well.

If demographics is pushing the world towards the mother of all economic slumps, is there anything that can be done to turn things around?

You're listening to Money Talks from The Economist, our weekly podcast on the markets, the economy, and the world of business.

And in today's show, the economic consequences of falling fertility.

First, we look at how low birth rates are no longer just affecting rich countries, but middle and low-income ones too.

Then we hear how there's no quick fix for turning around the birth rate crisis.

Policy can do a lot only in the long term.

It is not going to work in the short run to expect there will be some switch you can just switch over and then see a big change right away.

And finally, how a graying population can hold the younger generation back.

The young people within the big company also become less innovative because they have less opportunity to be promoted.

ALICE HEMSWORTH-JOHNSON Alice, Tom, hello.

ALICE HEMSWORTH-JOHNSON I think this is the first week in quite a while where we're all actually where we're meant to be, the parts of the world we're paid to be in?

We are intrepid foreign correspondents, at least you and I are, Mike.

So, you know, we should be out in the world on reporting trips rather than twiddling our thumbs at home.

But I have returned from my intrepid reporting trip to Palm Beach and I am in Washington DC as per my original billing.

Well, unfortunately, most of my reporting happens over Zoom calls and at the Bloomberg Tonal.

So I'm back in the London studio as usual.

I bet you never imagined, Alice, that so much of being a foreign correspondent would require you to be in Kentucky.

I guess from Singapore's perspective, it's so small that it's basically impossible to walk for more than a couple of hours without crossing a border.

So it's no wonder that I'm in a lot of places.

Still, closer to the matter at hand, we are talking about fertility today.

And rather than talking about our travel or expense policies, it's a good job The Economist has pretty good maternity and paternity leave policies.

Otherwise, our editors might take the topic of today's podcast as something of a veiled criticism.

Yeah, well, I mean, none of us have children, at least as far as I'm aware, but we're all quite close in age.

And this is certainly a time where you start to really see the trade-offs that come with having kids, whether that's housing or work-life balance or depending on where you live in the world, the cost of education.

Yeah, I was in Seoul quite recently and I saw Hyun who we heard from at the beginning And it's hard to exaggerate just how visible that the lack of children in Seoul is.

And it doesn't feel entirely coincidental that it's also a place with absurdly high house prices.

And it's also a place with widespread and very expensive private tutoring.

It's got a very competitive professional climate.

But Seoul is really just a sort of extreme example of what is actually an increasingly common trend around the world.

So, Mike, tell us what's happening with fertility globally then.

So the key number to think of that you might hear quite a bit around this discussion is called the total fertility rate.

That is basically an estimate of the number of children each woman will have through their life.

It's done at a population level, rather than a sort of media or anything like that.

The key number in that definition is 2.1.

That is called the replacement rate of population, basically.

If you have a level over 2.1, population will generally tend to grow over time.

If you have a level below 2.1, it will tend to shrink over time.

Obviously, there's other things at play there, mostly the longevity, the life expectancy of older people.

If you look around the world, it's Japan and Italy that are often considered veterans of a low fertility rate.

Their fertility rates fell below 2.1 quite a long time ago.

They've had declining populations for quite a long time.

2 of the oldest countries in the world as a result of that.

But those situations now look pretty slow and steady compared to what's happening in South Korea, in particular in other parts of East Asia.

As we heard at the start of the show, they're having the most dramatic decline in fertility yet recorded.

Japan and Italy might have got to those levels first, but their situation is becoming increasingly commonplace around the world.

In 2010, there were 98 countries and territories with fertility rates lower than the replacement rate.

By 2030, it's expected by the United Nations to reach

And is this just a problem in rich countries?

Increasingly not just a rich country problem either.

Low fertility rates once upon a time people used to associate very strongly with rising and higher incomes, but it's not just countries like Japan and Italy which have been developed industrialised for a while, but middle income and lower income countries too.

If you look at a country like Thailand, it's got a fertility rate of about 1.3.

Perhaps most notably of all, India's fertility rate recently fell below 2.1 for the first time.

If you look at the 15 biggest economies in the world, which includes Brazil, China, India, Mexico, all of them have fertility rates below 2.1 now.

Right, so that's a pretty seismic shift from the rapid population growth that we saw in the 20th century.

What are the economic ramifications of that, Mike?

So some of these are really well known, and some of them are sort of barely ever talked about.

First of all, what happens in the sort of opening decades when birth rates decline is actually really economically beneficial looking at it from a sort of output perspective.

You get what's called a demographic dividend.

In its most basic sense, it means there are fewer children to look after and lots of young adults around.

That means there's more people out working.

A lot of countries go through this when they're transitioning very quickly from pre-industrial fertility rates, often about 6 children or so per woman, to levels of more like 2.

So what you end up with initially is an enormous group of working age people from the last generation of kids, where the parents had that very high fertility rate, far fewer elderly people to look after, and far fewer children to be looking after.

So if you're a GDP maximiser, that's really what you want, an enormous group of 20 to 40 year olds surrounded by pretty small, older and younger groups.

It's good news for the tax man as well, obviously.

Yeah, so that's the first step of things.

So that pattern of fertility, it makes people feel richer and things seem easier for a while, but then what happens?

So this 1 doesn't take a sort of expert to understand.

People get older, those low birth rates start to feed through into smaller new cohorts of young workers.

This usually happens at the same time that life expectancies are rising, which means healthcare spending going up, which means pension spending going up.

It's what we talk about whenever the demographic transition or demographic challenges are the subject.

It's not getting any better, but we basically know what the solution is here.

The taxman is coming to strip it all away to spend on pension spending and healthcare spending.

But I think we all know what the answer is here, basically.

But there are some really less well-understood economic effects as well, which may turn out to be just as significant.

And those are the effects on things like innovation and entrepreneurship.

Basically, there's a lot of research about the way young people think differently to older people.

Younger people have more of what's called fluid intelligence, it's typically thought of as sort of problem solving in areas that people haven't encountered before.

You get less of that, the worry is that you get less disruptive innovation.

And eventually not having as many new out-of-the-box inventions and changes to the way we do things means lower productivity and it compounds the problems with the fiscal shortfall.

We'll be getting into the productivity issue a bit later in the show.

Well, that all sounds like a bit of a slow-moving car crash to me, Mike.

Can you shed any more light as to why exactly this is happening?

So to get to the bottom of what's driving countries around the world into demographic decline and whether there's a way of stopping it, I spoke to Matthias Doppke.

He's a professor of Economics at the London School of Economics.

He's written a lot about fertility and the issues surrounding it.

Matthias, thank you very much for joining us.

Most places in the world once had fertility rates of around 6 per woman, whether this is countries that are low-income today or places that are high-income today but in the distant past.

You've seen then a decline from that sort of level to around 2 or just below.

Obviously, this didn't all happen overnight.

What do economists and historians look at as the main causes of that initial decline?

KRAUSER Initially, it is an observation that is perplexing for economists because it happens as economies develop and people get richer.

And usually as we get richer, we want to have more things, not less.

And so the way economists resolve this conundrum is with this idea of a quantity-quality tradeoff.

When you think about deciding how many children you want to have, you're really doing 2 decisions at the same time.

1 decision is how many children you want to have, but another decision is how much you want to invest in them.

Nowadays, people want to invest a lot in their children, which means we spend a lot of time caring for the children.

It's really a lifelong project with a lot of input from the parents, both in terms of time and money.

If you think back to earlier pre-industrial times, parents did not do all of these things, children did not go to school.

Instead, children actually worked from a young age.

So children actually contributed a lot to the household income rather than being a recipient of spending and time for the parents.

And so this shift from low investment to high investment is the primary reason we believe that fertility fell as economies got richer.

S1 So more recently, some of the relationships that we relied on and understood between income and fertility seem to have changed or broken down a little bit.

You've written some research on this subject in the last year or so.

Tell us a little bit about those changes to the standard model.

And this is really something that's happened in the last 20 years or so.

So in the time I've been in the profession, the data on fertility has really changed quite dramatically.

These ideas I talked about earlier essentially relate fertility to the costs of children.

1 aspect of this cost is investment in children, which we often measure by education.

The second aspect of the cost of children that was also emphasized is the opportunity cost of time, which just means it takes time to raise children.

Often it is mothers that spend most of this time.

So as mothers' time gets more expensive, children also get more expensive.

And we measure the value of a mother's time by wages.

So, in a country where many mothers work and receive high wage in the labor market, children are relatively more expensive.

And so these ideas of the cost of children driving fertility worked very well in the data until 2 or 3 decades ago in the sense that the richer countries had fewer children and also countries where we had higher female labor force participation, those countries also had lower fertility rates compared to those where many mothers were staying at home to care for their children.

Now, in the last 2 or 3 decades, these relationships have reversed within the high-income countries.

You observe now that higher-income countries have similar or maybe even slightly higher fertility rates than the lower-income countries in this group.

And maybe more importantly, you observe that countries where many mothers work have higher fertility rates than those where more mothers stay at home.

So these relationships have reversed, which is really a challenge for economists and other social scientists to account for.

In these richer countries with low fertility rates, why have they ended up with these different outcomes where, for some, the fertility rate hasn't dropped quite so precipitously?

We believe what we are seeing is that in terms of what mothers actually want to do, in terms of the aspirations that men and women have, we have had this convergence in gender roles essentially in all of the high-income countries.

So if you ask young women if they plan to have careers and to have children, most will say that they want to have both.

By the way, the same answers men would give, you know, it's something that men, of course, have been doing for many decades.

Now when you come to this point where essentially the objective that couples have is for both to work and to also have a family, the question becomes, well, how easy is it to do this in practice?

And what we point out is that what seems to vary now a lot across countries is how compatible are families and careers actually in the society that you live in.

For example, provision of public childcare obviously matters for how easy it is to combine a career and having a family.

But there's also other factors such as prevalent social norms and also what the other parent does.

You know, the contributions of fathers in the household, of course, also matter.

And if there's a conflict between career and family is lessened, that will make it easier to decide to have more children.

We think this is now what explains a lot of this variation that we're seeing across countries today.

So given those causes and drivers, how do you view the prospects of this changing?

Because I think on the face of it, sometimes this looks incredibly bleak.

Fertility rate of about 1 means that essentially the next generation of children is roughly half the size of their parents' generation.

You know, you project those numbers forward for any extended period of time, and the population shrinks fairly rapidly in the grand scheme of things.

Do you see a prospect of this changing, or do you think this is just a new permanent way of living?

KKMT Some observers say, well, we have to go back to a more traditional division of labor.

Of course, we're still far from equality, but I think this direction of change is not going to reverse.

1 way to think about the current situation is that we currently have a mismatch between what aspirations are that people have for their lives and what the institutions and social norms are that they currently are facing in their day-to-day lives.

What I mean by this is that many of the institutions we have today and also the social norms that back up what people do still reflect the reality of a few decades ago.

For example, we have this observation in time-use data that even in couples where women are the primary earners, where they make a higher income and work more hours than their husbands.

They still tend to do the majority of the housework and the majority of the childcare.

Economically, that doesn't make much sense.

We think this reflects social norms that are still lagging behind the reality that we are facing today.

Now, we do know that these social norms are changing.

So the upshot of this is that I think there's a prospect that these social norms and also the institutions keep catching up to our new reality and therefore lessen this conflict between families and careers going forward.

And that would be a reason for fertility rates to recover at least somewhat.

If you were in charge here as someone with a very strong command of the evidence around what certain policies do, for example, are there particular things that you would look at doing that might alleviate some of the gaps between career ambition and the social norms of parenting that you've described there?

I also think policy can do a lot only in the long term.

Countries have tried subsidies, for example, just hand out cash benefits for having children.

But if you look at this wider situation, if you ask the question, for example, why is it the case that today in, say, Scandinavian countries and France, you have an environment that is more favorable to having a gender-balanced way of raising children, you have to, I think, conclude that public policy did play an important role in this.

If you have a policy that says that there is a very extensive parental leave, but just for mothers, and nothing at all for fathers, of course, this policy will reinforce a traditional division of labor and traditional gender norms.

If you have an environment where you create a public child care that's easily accessible and it becomes a more a standard to send your kids into those child care centers and keep on working for both parents, over time, the social norms also will start to shift.

So I think policy changes that places like Sweden and France did decades ago over time did result in this new reality.

Matthias, thank you very much for joining us on Money Talks.

So Alice and Tom, lots to unpack there, especially the apparent impact of government policy, the sort of intersection between culture, society, what governments can enforce from a top-down basis and how these things inform each other.

Can governments turn that fertility frown upside down?

God, you can imagine that being some sort of terrible slogan for having more babies.

Well, terrible cheesy slogans aside, I agree there's tons to pick up on there.

I guess I was most interested in the point Mattias made about how women in richer countries are no longer those with the lowest birth and fertility rates of all.

And in some ways that's kind of encouraging, in part because, look, low or sharply declining birth rates are basically the setup for every horrible science fiction film about women being forced back into domestic servitude or worse.

You know, I've spent way too much time reading and then watching The Handmaid's Tale not to feel a certain way about what this story might imply for women or what people will say about women should be doing with their time and their bodies.

That said, it seems like when women have high enough incomes, they tend to be a bit more inclined to have kids once more or at least not sort of entirely disinclined to have them.

Mattia suggested various things that might have lessened the conflict that women feel between work and having children, things like policy, men doing more.

But I also sort of immediately wondered whether it does have something to do with richer women these days earning enough that it makes sense for them to keep working and pay for childcare instead of doing it themselves.

So when women were just breaking into the workforce in the 50s and 60s in lower paying or more junior roles, their wages might not have covered childcare costs and it might not have made any sense for them to try and do both.

But now that women are more commonplace and higher paying or more powerful roles, it does make more sense for them to keep working and they have the income to pay for that care.

Now, whether that is enough to spare the world from the ravages of declining populations?

As an aside, I just wanted to say that I think it's hilarious hearing someone talk about children as a quantity-quality trade-off.

But more seriously, I think 1 debate this sheds a new light on is immigration.

Obviously, immigration has become a very hot issue in a lot of rich countries in recent years with lots of fears over migrants stealing domestic jobs.

But the chronic labor shortages we're already seeing in many rich countries, which have been feeding in inflation, are in no small part, thanks to an aging population, and that's just going to get a lot worse.

Now 1 way to start counterbalancing that is to bring in more migrants who tend to be much younger than the domestic populations in a lot of rich countries.

Now, in the very long run, that option may disappear as demographic decline affects more and more countries around the world.

But I think the timing is such that in the years ahead, immigration could be a valuable lever for easing some of the pressures of an ageing population.

Now, listeners, if you're interested in hearing more about demography, next week's episode of Drum Tower, which is The Economist's podcast on China, takes a deeper look at how declining birth rates are affecting that country, which has recently ceded its place as the world's most populous country to India.

Another way that declining populations are likely to impact economies in the years ahead is through the housing market.

And there's an excellent piece in The Economist weekly edition this week by our colleague Callum Williams on whether the housing collapse, which is a topic that we picked up a couple of weeks ago, is now over.

And spoiler alert, Callum came to mostly the same conclusion that we did, that the slump has probably come to an end.

But to find out why he thinks that is the case, you can go and read his piece and more for absolutely nothing by going to economist.com forward slash podcast offer for a free 30-day digital subscription.

That's if you're not a subscriber already.

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Money Talks: The baby bust blues