The Age of Depopulation: What It Means for the Economy
- Felix Will
- Nov 5, 2024
- 6 min read
Updated: Mar 27
For centuries, discussions surrounding overpopulation and its potentially devastating effects on our environment, resources, and economy have dominated the headlines. Yet, a new phenomenon is beginning to attract people’s attention: depopulation.
As birth rates are seen plummeting around the globe—in both high-income countries and low-income countries—our world may at some point see the first reduction in global population since the bubonic plague in the 1300s.
A Global Transition to Fewer Births
From Europe to East Asia, countries are experiencing a demographic decline. A well known example of this is Japan, where fertility levels are currently 40% below replacement (the replacement rate, defined as the average number of children a woman must have to maintain stable population size, is typically 2.1 births per woman in developed countries), leading to an aging population.
Similarly, Europe is struggling to keep its population steady, having to rely on immigration. South Korea’s fertility rate hit a record low of 0.78 births per woman in 2022, making it the lowest in the OECD. Shockingly, even China— synonymous with its rapid population growth—has seen a recent decline in population growth because of its previously strict family policies.
Although I have only mentioned a few examples, it is important to recognize that this decline can be seen across the globe: the United Nations predicts that over 20 countries could see their populations halved by 2100. This rapid shift in population will result in many changes in society, most importantly within the economy.
A Strain on Economic Growth
Economic growth has often been tied to an increasing labor force. Typically, more people working means that overall productivity increases and an increase in consumer spending—a core component of aggregate demand.
Aggregate demand = Consumer spending + Investment + Government spending + (Exports - Imports) [AD = C + I + G + (X - M)].
A decline in the birth rate means there will be fewer new citizens joining the labor force. Therefore, at some point, the number of people leaving jobs will greatly exceed the number of people beginning to work, resulting in a shrinking labor force.
This also means there is less consumer spending, so aggregate demand will decrease. A decline in young people entering the workforce will also mean that businesses will struggle to find talent, leading to potential wage inflation, which ultimately reduces competitiveness on the global stage. As a result of all these factors, businesses will be less willing to invest, leading to an even more dramatic decrease in AD.
The Economic Burden of Aging Populations
One of the first challenges that depopulation will bring forth is the economic burden of an aging population. Modern medicine will allow people to live longer, but the working population will shrink rapidly, putting immense pressure on social welfare systems. Key economic plans, such as pensions, social services, and healthcare, will have to adapt to the larger elderly population, putting a strain on government budgets, which potentially means that taxes may have to be raised to alleviate the stress.
Aging populations can be seen in our society today; an example is Germany, which is among only six other countries in the world to have reached Stage 5 in the demographic transition model. This model illustrates the relationship between birth rates, death rates, and total population size over time, with Stage 5 being the point at which the birth rate dips below the death rate, resulting in a "natural decrease." Without sufficient reforms, countries such as Germany, Ukraine, and Greece will experience public financial difficulties.
Real Estate and the Ghost Town Phenomenon
Depopulation will not only affect the labor force but will also have a significant impact on real estate. In rapidly aging and shrinking towns, people will start to move out, causing a phenomenon known as a "ghost town." An article written by The Guardian in 2021, titled "As birth rates fall, animals prowl in our abandoned 'ghost towns'," reveals that this is even a problem in our society today. For example, Spain has seen a huge boom in ghost towns, to the point where José Benayas, a professor of ecology at Madrid’s University of Alcalá, believes that forest coverage in Spain has tripled since 1900 (from 8% to 25%) as greenery slowly seeps into abandoned homes. As demand in these areas falls, house prices plummet, leading to stagnation in the economy, diminished local tax revenues, and an overall decrease in economic well-being in those regions.
However, the "ghost town" phenomenon is not all bad, as it helps reduce house prices within urban areas, allowing people to move to the countryside for a lower cost. Although this may be a benefit, real estate markets and industries will suffer as the demand for new home construction will greatly fall.
Innovation and the ‘Silver Economy’
The era of depopulation will not be all bad; history has shown us that in times of scarcity, we tend to innovate, as seen in the agricultural boom in 18th-century Britain. The increasing population posed a great threat to Britain’s food security, so they developed key systems to solve the problem: the establishment of land for large farms, selective breeding, and the mechanization of seed sowing.
One industry that could become prevalent in the age of depopulation is the "silver economy," which refers to industries revolving around elderly people. A wide array of goods and services—such as pensions, home care services, and entertainment—could be adapted to meet the demands of aging populations, helping to counteract the decline in growth elsewhere.
An example of this shift in goods and services can be seen in China, where a large insurance company, Ping An Group, has started to offer an extensive ecosystem for elderly people. This ranges from a smart health monitoring system and a round-the-clock medical consultancy to organizing travel. In recent years, Ping An Group has seen massive growth because of its senior care ecosystem: its Life & Health business experienced a 36% year-on-year growth in 2023, with 70% contributed by the senior care ecosystem.
The Role of Automation and AI
Another solution to the shrinking working-age population would be to integrate AI and automation into the workforce. This would allow robots to take over mundane jobs, leaving more important roles to the remaining population. A report published in March 2024 by Goldman Sachs estimated that AI could replace the equivalent of 300 million full-time jobs. This shift would help alleviate the economic stress caused by this change.
However, the widespread adoption of automation would bring its own set of challenges, most notably the need for massive investment in digital infrastructure. This could be problematic, as existing infrastructure may need to be destroyed and replaced, resulting in higher-than-anticipated costs. Another issue is that certain people could be displaced by automation but may not have the necessary education or skills to take up another job, potentially leading to a rise in unemployment.
Conclusion
As the world navigates the era of depopulation, the challenges it presents are undeniable—from strained social welfare systems to shrinking labor markets and declining consumer demand. The economic landscape we have long associated with perpetual growth may need to adapt to a reality where fewer people drive innovation, productivity, and consumption. Yet, as history has shown, periods of scarcity often breed ingenuity. The rise of the "silver economy" and advancements in automation and AI offer glimpses of how societies might adapt to these demographic shifts.
However, the transition will not be seamless. Governments will need to grapple with the burden of aging populations, businesses will have to rethink their strategies, and economies will need to find new engines of growth. Ultimately, while depopulation brings challenges, it also presents an opportunity to reshape our economic systems to become more sustainable, efficient, and resilient for the future.
Works Cited
“Korea’s Fertility Rate Hits 0.78, a New Low and Still Lowest in OECD.” Korea JoongAng Daily, 22 Feb. 2023, koreajoongangdaily.joins.com/2023/02/22/national/socialAffairs/korea-birthrate-fertility-rate/20230222173547737.html.
Eberstadt, Nicholas. “The Age of Depopulation.” Foreign Affairs, 21 Oct. 2024, www.foreignaffairs.com/world/age-depopulation-surviving-world-gone-gray-nicholas-eberstadt.
“Japan’s Fertility Rate Drops to New Record Low.” Nippon.Com, 11 June 2024, www.nippon.com/en/japan-data/h02015/.
“As Birth Rates Fall, Animals Prowl in Our Abandoned ‘Ghost Villages.’” The Guardian, Guardian News and Media, 24 Jan. 2021, www.theguardian.com/world/2021/jan/24/as-birth-rates-fall-animals-prowl-in-our-abandoned-ghost-villages.
“British Agricultural Revolution.” Wikipedia, Wikimedia Foundation, 16 Oct. 2024, en.wikipedia.org/wiki/British_Agricultural_Revolution.
Client. “Unlocking the ‘Silver Economy.’” Financial Times, www.ft.com/partnercontent/ping-an-insurance/unlocking-the-silver-economy.html. Accessed 5 Nov. 2024.
Cox, Josie. “The Anxiety of Being Replaced by Ai.” BBC News, BBC, 13 July 2023, www.bbc.com/worklife/article/20230418-ai-anxiety-artificial-intelligence-replace-jobs.
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