National efforts to confront a declining population

In general, a country’s GDP is dependent on the size of its population and the productivity of its people.[2] More specifically, a country’s GDP is dependent on the size and productivity of its workforce.  A country’s workforce is that segment of its working age population that is employed.  Working age population is generally defined as those people aged 15-64.[3] Many countries are already confronted with a declining workforce.[1]

Therefore, for a country confronted by a declining population, increasing GDP translates to increasing the size and productivity of that workforce.

Policies that could increase the size of the workforce include:

• Encourage more women to join the work force

A country’s workforce is a subset of its working age population. Encouraging those women in the working age population who are not working to find jobs would therefore increase the size of the workforce.

Female participation in the workforce currently (2018) lags men’s in all but three countries worldwide.[1] Among developed countries the workforce participation gap between men and women can be especially wide.  For example, currently (2018), in South Korea 59% of women work compared with 79% of men.[1]

However, even assuming that more women would want to join the workforce, increasing their participation would give these countries only a short-term increase in their workforce, because at some point a participation ceiling is reached, further increases are not possible, and the impact on GDP growth ceases.

• Stop the decline of men in the workforce

In the United States the labor force participation of men has been falling since the late 1960’s.  The labor force participation rate is the ratio between the size of the workforce and the size of the working age population. In 1969 the labor force participation rate of men in their prime years of 25-54 was 96% and in 2015 was under 89%.[4]

• Increase the retirement age

Some economists argue that 65, a common retirement age, has always been an arbitrary point at which to end a working life.[1] Increasing the retirement age has the effect of increasing the working age population. Raising the retirement age requires other policy and cultural changes if it is to have any impact on the size of the workforce:

1. Pension reform. Many retirement policies encourage early retirement. For example, today (2018) less than 10% of Europeans between ages 64-74 are employed.[1]    Instead of encouraging work after retirement, many public pension plans restrict earnings or hours of work.[5]
2. Work place cultural reform. Employer attitudes towards older workers must change. Extending working lives will require investment in training and working conditions to maintain the productivity of older workers.[1]

One study estimated that increasing retirement age by 2-3 years per decade between 2010 and 2050 would offset declining working age populations faced by “old” countries such as Germany and Japan.[1]

• Increase immigration

A country can increase the size of its workforce by importing more migrants into their working age population.  Even if the indigenous workforce is declining, qualified immigrants can reduce or even reverse this decline.  However, this policy can only work if the immigrants can join the workforce and if the indigenous population accepts them.[1]

For example, starting in 2019 Japan, a country with declining workforce, will allow 5-year visas for 250,000 un-skilled guest workers.  Under the new measure, between 260,000 and 345,000 five-year visas will be made available for workers in 14 sectors suffering severe labor shortages, including caregiving, construction, agriculture and shipbuilding.[6]

• Natalism

A country may pursue natalist policies to improve its fertility rate.   This will promote a higher birth rate, a larger population, and a larger workforce. Government sponsored natalist policies generally fall into three broad categories:[7]

1. Financial incentives.  These may include child benefits and other public transfers that help families cover the cost of children.
2. Support for parents to combine family and work. This includes maternity-leave policies, parental-leave policies that grant (by law) leaves of absence from work to care for their children, and childcare services.
3. Broad social change that encourages children and parenting

For example, Sweden built up an extensive welfare state from the 1930s and onward, partly as a consequence of the debate following Crisis in the Population Question, published in 1934. Today, (2017) Sweden has extensive parental leave that allows parents to share 16 months paid leave per child, the cost divided between both employer and State[8]

Another example is Poland’s 500+ program[9]

Development economists would call increasing the size of the workforce “extensive growth”.  They would call increasing the productivity of that workforce “intensive growth”. In this case, GDP growth is driven by increased output per worker, and by extension, increased GDP/capita.[10]

In the context of a stable or declining population, increasing workforce productivity is better than mostly short-term efforts to increase the size of the workforce.  Economic theory predicts that in the long term most growth will be attributable to intensive growth, that is, new technology and new and better ways of doing things plus the addition of capital and education to spread them to the workforce .[10]

Increasing workforce productivity through intensive growth can only succeed if workers who become unemployed through the introduction of new technology can be retrained so that they can keep their skills current and not be left behind.  Otherwise the result is technological unemployment.[11]   Funding for worker retraining could come from a robot tax,[12][13] although the idea is controversial.[14]

Productivity-improving technologies