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Don't Sweat Low Birthrates

By John Tamny

With birthrates falling in wealthy nations, there's a growing perception that those countries face a somewhat darker economic future for the perceived child deficit. The thinking is that with less people working and producing, countries with falling populations will see economic output drop due to a lack of young, able-bodied workers.

At first glance, the above assumptions make sense. From Adam Smith's pin factory in the Wealth of Nations to the assembly-line innovations of Henry Ford, extra "hands" have allowed for the very specialization of labor that leads to rising economic growth. Workers are in the end capital, so if populations decline, there would seemingly be less economic activity in the aggregate. To combat the aforementioned population decline, countries from Estonia to Australia to the United States are subsidizing childbirth to stave off the supposed economic stagnation that will result from reduced population growth.

What is forgotten amidst all the public and private handwringing is that birthrates have very little to do with the all-important factor when it comes to economic growth: gross domestic product per worker. Just last week, the U.N.'s International Labor Organization (ILO) released a report on worker productivity that should calm any fears about birthrates.

Indeed, the classical model of economic growth makes plain that demand is an afterthought. With human wants unlimited, there will always be demand for goods. The important factor is supply, in that the latter is demand. People ultimately trade products for products, so if labor productivity is rising, the level of population growth (or decline) isn't much of a factor.

As the ILO study shows, U.S. workers are the most productive in the world by a wide margin ($63,885 per worker), followed by Ireland, Luxembourg, Belgium, and France. Though the U.S. birthrate is still thought to be high enough to sustain population growth, it's ultimately not very relevant. The more important factor here is that worker productivity and output continue to rise.

Notably, birthrates in Lebanon, Lesotho and Liberia are far higher than they are in the U.S., Ireland and France (along with Luxembourg and Belgium), but no one is suggesting that the former countries are primed for major growth in the future. Citizens of all three doubtless have a lot that they "want," but lacking the worker productivity of wealthier nations they don't have the supply to fulfill their desires. Countries that demand goods are first supplying them, which underscores once again the importance of productivity per worker above population.

When we think of birthrates, we also have to consider the economic implications of bearing children. While the responsibility of parenthood can certainly drive working parents to much higher levels of industriousness, that same responsibility can also cause parents to reduce their workload given the natural desire to spend time with their children.

Furthermore, children are very expensive. This means that baby booms coincide with a great deal of capital being diverted from savings and investment to direct consumption. When we remember that entrepreneurs are able to innovate thanks to the capital provided by those who have foregone consumption, we can then say that greater savings will fund future commercial advances that will make workers even more productive.

Finally, Nobel Laureate Robert Mundell made plain long ago that, "the only closed economy is the world economy." To concern ourselves with low-country birthrates is to assume that we only trade within our country borders. Instead, the world economy is increasingly interconnected. More encouraging, formerly dormant economies such as Russia, China and India continue to expand their output in such a way that insures greater and greater work specialization and productive exchange among peoples.

Assuming the world's birthrate falls, even then we shouldn't be concerned so long as workers around the world are increasing their yearly output. The latter is what matters, so while there might be reasons to worry over falling rates of reproduction, economic growth shouldn't be one of them. Instead, we should concentrate on the obstacles to productivity that keep so many highly populated countries consistently mired in poverty.

John Tamny is an editor at RealClearMarkets. He can be reached at

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