A brewing demographic crisis in the U.K. might add another layer of complication to the country’s ebbing productivity rates, which the Labour government hopes it can tackle.
Parts of the U.K. are seeing their lowest birth rates in about 90 years, or since World War II. With a productivity crisis looming large, a stubbornly low number of births could mean more problems for the U.K. than just an aging population.
England and Wales are seeing fertility rates plummet to 1.44 children per woman, according to data from the Office of National Statistics released Monday. Still, the official body highlighted no dearth of women of childbearing age between 15 and 44 years.
If this rate persists, the U.K. could have fewer working-age people in the coming years, adding new strains to the economy and paving the way for higher immigration to meet labor market needs.
“Relatively high rates of immigration may save us from going the way of Japan or South Korea, but these trends should still worry anyone thinking about what Britain will look like in 2050,” Jonathan Portes, an economics and public policy professor at King’s College London, told the Financial Times.
This is set against a backdrop of alarming productivity rates and youth worklessness among Britain’s population. Productivity, for instance, nosedived following the Global Financial Crisis in 2008 and has never really recovered since. That’s resulted in economic stagnation and low relative competitiveness to markets like the U.S.
Driving productivity in an aging economy
For context, if death rates are maintained at current levels and immigration isn’t used as a spigot to drive up the population, then the U.K. falls starkly behind the recommended replacement rate of at least 2.1 children per woman.
“The fertility rate in England and Wales has been below two children per woman since the 1970s,” the ONS said. “The population of England and Wales is projected to continue to grow, largely because of net migration.”
The relationship between birth rates and productivity is a key economic growth engine.
In a recent report, the IMF said that if replacement rates can’t keep up with the recommended level, the result will be a smaller working-age population, hurting economic productivity and increasing the burden on social support systems. In the U.K.’s case, where productivity is already a concern and has struggled to show meaningful improvements in nearly two decades, population decline could put it in a tight spot.
The government is then left with few options to balance economic growth while catering to its population, such as raising the retirement age to allow people to work longer and provide for their dependents or expanding social services. Demographic changes also impact housing, education, and public debt.
To be sure, Italy and Germany also face the risk of a rapidly aging population and its drag on their respective economies.
Nordic countries have devised innovative ways to encourage families to have more children by subsidizing childcare access and offering longer parental leave. Hungary is paying couples that have bigger families, while Greece pumps €1 billion into pro-child policies each year that provide allowances on baby items and other incentives.
While the U.K. is still better off than some of its other European counterparts, it’s already seeing what low productivity could mean for its economy as a standalone trend.
If the U.K.’s fertility rates continue to plummet, it will face a compounded demographic crisis that will hurt its productivity and result in a greater degree of economic decline that could be hard to shake off.
