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The Cost of Low Fertility in Europe

  • 2008-2011
  • Project
Bloom, David, University of Michigan

Study: “The Cost of Low Fertility in Europe”
PI(s): Bloom, David
Co-PI(s): Canning, David; Fink, Günther; Finlay, Jocelyn E.
Affiliation(s): University of Michigan
Institutional Partner(s): HF Grant
Project Dates:
Start: 2008
End: 2011
Data Source(s): Cross-National Data
Methods: Modeling
Geographic Location(s): Europe

Description:
There are three theoretical channels through which fertility affects economic development: population growth with fixed resources (the Malthusian theory), the Solow capital stock effect, and the age structure effect. According to the Malthusian hypothesis, larger populations imply lower resources per capita in the presence of a fixed factor (land is frequently given as an example), and thus lower income per capita. A similar yet slightly more-subtle mechanism is at play in the Solow growth model (Solow 1956), where capital stock is built up through savings and declines with depreciation. With constant returns to scale, population growth works in the same way as capital depreciation, and thus lowers steady-state income per capita in the traditional Solow model.

The third link between fertility and economic growth, and the main focus of this project, is age structure. The age structure of a population follows from the historical sequence of fertility, mortality, and net migration, and directly determines the relative size of the working-age population. The demographic transition with fertility and mortality declines lead to a boost in the population of working-age individuals, and thus can experience economic growth. The prerequisites for the demographic dividend to be met are: a government that is capable of responsibly directing economic policy, trade policy that is implemented to encourage economic growth, an educated populace, a healthy population, labor policies that encourage employment, and peaceful relationships with neighboring countries. All European nations have fertility rates below the long-term replacement rate and will face absolute population decline in the near future. However, results show that the demographic transition has changed as European countries have experienced a rapidly aging population, which has lead to higher dependency and labor shortages. An important implication of this change is to prevent potential negative economic effects and the need to influence labor force participation. There is potential to increase labor force participation through raising the retirement age or encouraging in-migration.

Research Outputs:
Bloom, David E., Canning, David, Fink, Günther & Finlay, Jocelyn E.. (2009). The Cost of Low Fertility in Europe. European Journal of Population, 26 (2), 141-158. DOI: 10.1007/s10680-009-9182s:

Bloom, David E. & Sousa-Poza, Alfonso. (2010). Introduction to Special Issue of the European Journal of Population: ‘Economic Consequences of Low Fertility in Europe’. European Journal of Population, 26(2), 127-139. DOI: 10.1007/s10680-010-9209-7.

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