Population decline is a phenomenon that has been observed in various parts of the world, and it carries significant implications for a nation’s economic health and societal well-being.
The Impact on GDP
The Gross Domestic Product (GDP) of a country is a measure of its economic activity. It is calculated as the total population multiplied by the GDP per person, also known as GDP per capita. This term is a simple definition of economic productivity as well as individual standard of living. As populations grow more slowly, assuming no changes in growth of GDP/person, GDP will also grow more slowly. If the decline in total population is not matched by an equal or greater increase in productivity (GDP/capita), a country could experience a decline in GDP, known as an economic recession. If these conditions become permanent, the country could find itself in a permanent recession.
Decline in Basic Services and Infrastructure
A declining population can lead to a decrease in demand for basic services such as hotels, restaurants, and shops. This can result in job losses in these sectors. A falling GDP also implies a falling tax base that would support basic infrastructure such as police, fire, and electricity. The government may be forced to abandon some of this infrastructure, like bus and railroad lines, and combine school districts, hospitals, and even townships in order to maintain some level of economies of scale.
Rise in Dependency Ratio
The dependency ratio is the ratio of those not in the labor force (the dependent part ages 0 to 14 and 65+) and those in the labor force (the productive part ages 15 to 64). It is used to measure the pressure on the productive population. Population decline caused by sub-replacement fertility rates means that every generation will be smaller than the one before it. Combined with longer life spans the result can be an increase in the dependency ratio which can put increased economic pressure on the work force.
Crisis in End of Life Care for the Elderly
A falling population caused by sub-replacement fertility and/or longer life spans means that the growing size of the retired population relative to the size of the labor force, known as population ageing, may cause a crisis in end of life care for the elderly because of insufficient caregivers for them.
Difficulties in Funding Entitlement Programs
Population decline can impact the funding for programs for retirees if the ratio of working age population to the retired population declines. For example, in Japan, there were 5.8 workers for every retiree in 1990 vs 2.3 in 2017 and a projected 1.4 in 2050. Also, according to new research (2019) China’s main state pension fund will run out of money by 2035 as the available workforce shrinks due to effects of that country’s one-child policy.
Decline in Military Strength and Innovation
Big countries, with large populations, assuming technology and other things being equal, tend to have greater military power than small countries with small populations. In addition to lowering working age population, population decline will also lower the military age population, and therefore military power. A falling population also lowers the rate of innovation, since change tends to come from younger workers and entrepreneurs.
Strain on Mental Health and Deflation
Population decline may harm a population’s mental health (or morale) if it causes permanent recession and a concomitant decline in basic services and infrastructure. A recent (2014) study found substantial deflationary pressures from Japan’s ageing population.
In conclusion, while a declining population can pose significant challenges to a nation, it is not an insurmountable problem. Countries can still grow their economies and improve the standard of living of their citizens even with a declining population, as long as they can increase their per capita GDP, or overall economic productivity, faster than their population declines. However, it requires careful planning, innovative policies, and a willingness to adapt to changing circumstances.