Case studies of population structure change and economic growth.

The end of World War II brought not only economic growth to Western countries, but also so-called «baby boom» which stands for period of high birth rates – birth rates which are significantly higher than before and after this period. There is a dispute about the start and the end of baby boom years in different countries, however, it is beyond controversy that it happened right after World War II. Macunovich called the baby boom «an earth quake» and wrote «a totally unexpected, earth-shattering, and ground-breaking event experienced not just in the United States, but in virtually the entire Western industrialized world during 1950s and 1960s, as birth rates erupted and the number of babies born annually in many countries nearly doubled within just a few years»(Macunovich, 2002). The baby boom was totally unpredicted, for example, the long-run the projection made by Frank Notestein, Irene B. Taeuber, Ansley J. Coale, Dudley Kirk, and L.K. Kiser (Notestein, 1944) forecasted a prolong decline in fertility rate. The baby boom ended as unexpected as it started and once again it totally deviated from the predicted in 1960s continuation of fertility rise as the reason of rising economic growth.

After the World War II, people saw the optimistic future and the fertility rate soared both in Western Europe and the United States of America. The United States fertility rate rose from 2.2 children per woman in 1930s to 3.8 in 1957. Fertility rate began to fall only in 1960, this was very rapid fall and it reached the replacement level only in the middle of 1970s. Other Western countries also experienced this rise in rate of fertility, creating baby boom generation. The baby boom generation is moving into retirement which make North America and Western Europe countries to face unprecedented situation.

Now this «demographical dividends» have to be repaid as Baby Boomers soon will be out of labor force and will be spending their retirement savings while younger workers will take on debts to buy houses and cars. And this threat to the U.S. economy is considered as the most dangerous one. To understand how huge this generation is, we can just look at Figure 5. As we can see, once demographic transition ends, it turns into «demographic burden» for the country.

Figure 5. Distribution of population by age and sex in the U.S.
Source: U.S. Consus Bureau.

The threat of too big older population is hanging over not only the U.S., but also other developed countries like U.K., Germany, France, etc. Population aging is the most advanced in Japan and Western Europe. Both in Europe and Japan population aging is a cause combined by decrease in fertility, decrease in death rate and increase in life expectancy. Moreover, U.S. welcoming immigrants will still experience grow in working population while very conservative Japan(which is considered to have the most extreme demographic structure changes in the near future) where according to UN report «Trends in International Migrant Stock: The 2015 Revision» only 1.9 % of total population are immigrants. In contrast, in the U.S. 14.9 % of national population are immigrants.

The world in general is entering unfamiliar territory with respect to change of population structure. The predicted life expectancy by level of development you can see on figure 6:

Figure 6. Life expectancy, by level of development.

Source: UN, World Population Prospects, 2008.

NOTICE: Then provide here graphs of predicted fertility and mortality

As «baby-boomers» has aged, a lot of researches have been dedicated to relation between demography and various economic aspects. Many papers studied past data in order to understand what we should expect from baby boomers aging in future.

At first, authors of papers about relation between economic growth and demography were regressing population growth on economic growth and with no surprise population growth variable showed its insignificance in the equations. However, during the last decades a few authors denoted that demographic variable should be considered as the age structure of all population, so it reject the assumption of constant and stable age distribution in a country. By putting age structure as variable, plenty of research has been made in order to indicate the relation between economic growth and demography in different parts of the world.
According to Bloom and Sachs (1998), Bloom and Williamson (1998), and Bloom, Canning, and Malaney (2000), in so-called «East Asian economic miracle» when between 1965 and 1990 its 23 economies rose faster than those of all other regions, demographic dividend accounts for between one-fourth and two-fifth of this extraordinary economic growth. These accountings about involvement of demographic dividend in «economic miracle» were later confirmed by Mason(2001).

The case of East Asian economic transition is believed to be one of the most rapid one(by that time). It took from 50 to 70 years to change the composition of demographic situation. After the World War II Asian countries experienced development in medicine, safer water and better sanitary in general. That lead to a sufficient decrease in infant and child mortality. Infant mortality rate was 182 per 1, 000 in 1950 and 50 years later it was only 53 per 1000. Fall in infant mortality was combined with social programs which stimulated families to have less children. That program led to a sharp decline in fertility rates and took about 30 years. Right between the fall in infant mortality and decline in fertility rates the generation of Baby Boomers was created. As written above, these conditions of «demographic dividend» are considered to be one of significant reasons of such rapid economic growth. In the late 1960s generation of baby boomers started leaking into labor force, this was combined with lower number of dependents (as fertility rate fell). In general, this critically changed the proportion of dependents to labor force in population (dependency ratio). The working-age population was increasing (2.4% yearly on average) nearly four time faster than dependents between 1965 and 1990.

The case of Japan should be considered separately from not only East Asian countries, but countries from all over the world as it is in the most extreme demographic situation now. After the World War II, Japan had half of its infrastructure destroyed. However, excellent policies focused on building modern factories and existence of very educated labour force enabled Japan to push its technological progress. As the result, it became one of the most powerful economics in the world. By now, Japan have already experienced «demographic dividend» and now it is at the end of its transition period. Its population has the highest life expectancy at birth. Life expectancy at birth is the term that indicates the number of years newborn infant would live if mortality rate remained the same as at the time of birth. Median age in Japan is already 41[4]. Labor force who used to move the economy forward in the years of «economic miracle» became dependents and combined with lowered fertility this led to very challenging situation when dependency ratio will rise from about 50% now to 96[4]. There are a few possible reforms of labor, product reforms and fiscal consolidation proposed the Organization for Economic Cooperation and Development. However, Japan government has to face very big pressure on its economic growth provided by local demography conditions. On figure 7 you can see the projection of the future of Japan's demography from National institute of Population and Social Security which looks very pessimistic.

Figure 7. Trends in proportion of three major population groups in Japan.
Resource: National institute of Population and Social Securty Research. (Population projections for Japan, January 2012).