Declining Birth Rates and Their Effect on Future Economics

The declining birth rate in the West is poised to create a significant economic crisis, costing the U.S. quadrillions of dollars, according to recent reports. Despite past concerns about overpopulation, fertility rates in the U.S. and Europe remain below the replacement level of 2.1 children per family. This decline will reduce GDP, increase welfare costs, shrink the labor force, and shift global power away from the West.

Jesús Fernández-Villaverde of the American Enterprise Institute (AEI) warns that failing to address this crisis will have severe financial consequences. European experts echo this sentiment, emphasizing the far-reaching effects on social structures, labor markets, state finances, and security.

Global fertility has dropped dramatically, from five children per woman in 1950 to about 2.25 in 2023, according to the United Nations. The U.S. fertility rate is around 1.6. While nearly all regions face declining birth rates, sub-Saharan Africa and Central Asia remain exceptions. Only a few Muslim-majority nations in the OSCE region maintain replacement-level birth rates, while countries like China, India, and most of Europe face sharp declines.

A major factor in this demographic shift is involuntary childlessness. Many people who want children never have them, with Italy seeing a tenfold increase in childless individuals. Population momentum—sustained births from older generations—has temporarily masked the crisis, but as these generations age, population declines will accelerate.

The economic consequences of fewer children are dire. Economic growth depends on worker productivity and labor force size. The U.S. economy has historically grown by 1.9% annually per worker, but a shrinking workforce will slow growth and increase economic instability. A comparison with Japan illustrates this: from 1991 to 2019, the U.S. averaged 2.53% GDP growth, while Japan, suffering from demographic decline, managed only 0.83%.

A shrinking population also weakens tax revenue, straining government programs like Social Security, Medicare, and Medicaid. By 2042, there will be just two workers per retiree, down from three today. Health care costs will soar as aging populations require more medical attention. In Spain, people over 65—just 17% of the population—accounted for 80% of pharmaceutical expenses.

Beyond economic concerns, depopulation fosters social isolation and loneliness. Smaller families, declining church attendance, and urban migration lead to increased depression and weakened community bonds. Rural areas suffer the most, as essential services like hospitals and grocery stores disappear.

The geopolitical consequences of depopulation are significant. A smaller workforce limits a nation’s ability to maintain its military, manage national debt, and uphold global influence. Europe’s declining population may diminish its strategic importance in global affairs.

Immigration alone cannot resolve this crisis since this is a global problem. Shifting workers from one nation to another may help the country receiving immigrants, but likely not enough to offset a low birth rate.

The declining global birth rate poses a potentially severe economic and social threat, particularly in the West, where fertility rates remain below replacement levels. While the immediate effects are somewhat masked by population momentum, significant consequences could emerge within the next two to three decades. By the 2040s, many developed nations could experience acute labor shortages, pension system strains, and escalating healthcare costs due to aging populations. By the late 21st century, countries like China could see drastic population declines, potentially losing hundreds of millions of people, fundamentally altering global power dynamics.

In light of these concerns, I am optimistic about the future. Mankind is ingenious and able to solve even the most difficult problems. Technology and AI could help mitigate the economic impact of declining birth rates by enhancing productivity, automating labor-intensive jobs, and improving healthcare efficiency. Improved automation can compensate for workforce shortages by streamlining industries such as manufacturing, logistics, and customer service. In healthcare, AI-powered diagnostics and robotic assistance can reduce the burden on aging populations while improving patient care.

While the challenges of a declining birth rate are significant, the strategic use of technology, AI, and proactive social policies can help create a resilient and adaptive future where innovation sustains economic growth and enhances quality of life for everyone.