What is Demographic Winter?

The demographic winter is here. The last decades have witnessed an increase in the share of the
population aged 60 and older, which has moved from around 12.5 percent in 1950 to almost 22
percent in 2017. In 2040, this number is expected to reach 28 percent of the U.S. population. In
other words, in two decades, almost one third of Americans will be older than 60.

Economists tend to emphasize the fiscal impact of population aging, a phenomenon that can be
attributed to lower fertility rates, restrictive migration policies, and an increasing life expectancy.
In effect, an aging population results in the labor force facing a greater fiscal burden to support the
non-working population as well as more spending on social programs such as Medicare and Social
Security.

Yet there is an aspect that is usually overlooked when analyzing population aging: its impact on
economic growth. A 2016 paper published by the National Bureau of Economic Research
examines this question in detail, concluding that per capita GDP growth will be substantially lower
over the next decade than it would have been in the absence of population aging.

Here are some numbers. Over the period 2010-2018, the annual growth rate in per capita terms
was 1.5 percent. Without population aging, it would have been 80 percent higher, that is, 2.7
percent. And something similar is expected to occur next decade. Between 2020 and 2030,
population aging will reduce per capita economic growth by around 0.6 percentage points per year.

If these numbers don’t tell you much, let me give you an example. When income per capita grows
at a one percent rate, it doubles every 70 years. However, it takes only 35 years to double at a two
percent growth rate.

Why does population aging have such a negative impact on economic growth? Two mechanisms
are at work. First, population aging implies slower labor force growth as more people retire than
enter the workforce. Since 2000, the labor force participationrate has fallen by almost seven
percent. This in turn results in fewer people producing goods and services in relation to the total
adult population, with the subsequent negative impact on per capita growth.

Second, population aging has a negative influence on labor productivity, a key ingredient to
economic growth. An older workforce will find it more difficult to adapt to productivity-enhancing
technologies, which can push training costs up for employers. Furthermore, workers in the last part
of their working life tend to be more productive. When they retire, the positive productivity
spillovers generated by older workers interacting with younger ones disappear, reducing average
productivity, slowing down wage growth, and ultimately undercutting economic growth.

Population aging, an inevitable consequence of prosperity, isn’t limited to the United States.
Europe, for instance, has been experiencing this problem for years, with the detrimental impact this
entails on economic growth and living standards.

Yet the negative impact this demographic trend has on economic growth can be alleviated by
pursuing less restrictive migration policies that slow down the aging of the population. Similarly,
the introduction of growth-boosting reforms would also help mitigate the effects of the
demographic winter we are immersed in.

These reforms should go in two directions. First, they should be aimed at lowering the tax burden
of businesses, especially those that invest heavily in R&D, which would incentive them to increase
their innovation efforts. The elimination of bureaucratic barriers to wealth creation would also
have a positive effect on the economy, particularly in European countries where starting a company
is often an obstacle race for entrepreneurs.

These measures would no doubt drive up productivity, partially compensating for the negative
effects of population aging on economic growth.

What is there Demographic Winter

A number of social trends of the post-war era have converged to create a perfect demographic
storm.

Men and women are delaying marriage, making it less likely they’ll have more than one or two
children. Today in the West, almost one in two marriages ends in divorce. The children of
divorce are less likely to marry and form families themselves.
More married women are putting off having children for careers. After 35, it becomes
progressively harder for women to conceive.
The growth of cohabitation also has an impact. (In Scandinavia, almost as many couples are
living together as married.)

Cohabitation is not conducive to childbearing or childrearing.

Over-arching all of these reasons is a culture of individualism that tells young adults that
satisfaction comes from careers, romance, travel and “personal growth” – not from having
children.

In addition, for the past 20 to 30 years, we have assumed that population growth was all bad, bad
for the environment and economic development.

Thus, almost every aspect of modernity works against family life and in favor of singleness and
small families or voluntary childlessness.

Statistics of country experiencing it

 Avg annual
rate of
Population
population
estimate
Country change Notes
(1 July
2020)
(%)
2015 - 20[15]

Albania 2,877,797 −0.09 low birth rate, emigration

low birth rate, emigration, population
increased in 2014 due to positive net
Belarus 9,449,323 +0.02
migration rate following war in Ukraine due
to refugee flow.
Bosnia and
3,280,819 −0.88 low birth rate, emigration, Bosnian War
Herzegovina
low birth rate, high death rate, high rate of
abortions, population is old, emigration, a
relatively high level of emigration of young
Bulgaria 6,948,445 −0.71
people and a low level of immigration and
lack of good policies encouraging
parents[16]
low birth rate, population is old,
Croatia 4,105,267 −0.61 emigration, War in Croatia, difference in
statistical methods[17]
Estonia 1,326,535 +0.17 low birth rate, emigration
(figure includes Abkhazia and
South Ossetia) high death rate, declining
Georgia 3,989,167 −0.17 births, high rate of abortions, emigration
and a low level of immigration
low birth rate, population is old, population
increased since 2013 due to positive net
Germany 83,783,942 +0.48
migration rate following civil war in Syria
due to refugee flow.
low birth rate, economic crisis, emigration,
Greece 10,423,054 −0.45
population is old
Hungary 9,660,351 −0.24 low birth rate, emigration
low birth rate, economic crisis, population
Italy 60,461,826 −0.04 is old, population increased in 2012, 2013,
and 2014 due to positive net migration rate
low birth rate, population is old and a low
Japan 126,476,461 −0.23
level of immigration
Latvia 1,886,198 −1.14 low birth rate, emigration
 Avg annual
rate of
Population
population
estimate
Country change Notes
(1 July
2020)
(%)
2015 - 20[15]

Lithuania 2,722,289 −1.47 high death rate, low birth rate, emigration
(includes the Pridnestrovian Moldavian
Moldova 4,033,963 −0.18 Republic) low birth rate, emigration

Poland 37,846,611 −0.10 low birth rate, emigration

low birth rate, population is old, economic
Portugal 10,196,709 −0.33
crisis, emigration
low birth rate, economic crisis, emigration
Puerto Rico 2,860,853 −3.29 to the U.S. mainland, effects of Hurricane
Maria
low birth rate, high death rate, high rate of
Romania 19,237,691 −0.70
abortion, emigration, population is old
high death rate, low birth rate, high rate of
abortions, emigration and a low level of
immigration until recently[18] Population
Russia 145,934,462 +0.13
increased slightly since 2014 due to
positive natural change and positive net
migration rate
Serbia 6,963,764 −0.34 low birth rate, emigration
low birth rate, population is old, economic
Spain 46,754,778 +0.04
crisis
Syrian Civil War prompting mass
Syria 17,500,658 −0.56
emigration from the country
high death rate, declining births, high rate
of abortions, population is old, war in
Ukraine 43,733,762 −0.53
Donbass, emigration and a low level of
immigration
emigration due to profound socio economic
and political crisis, deterioration of
healthcare system leading to rapidly
Venezuela 28,435,940 −1.12 increasing infant mortality rate, declining
births