You can’t get rid of the father. You need to choose a parent who is committed. This is the problem with mismatch.
Claudia Goldin, 2023 Nobel Prize winner and Harvard economist, didn’t speak about relationships today in abstract terms; instead she diagnosed why birth rates have been falling across developed countries.
She reveals a disturbing truth in an email exchange with : declining fertility has nothing to do with cultural decline. The problem is economic systems designed for families which no longer exist.
The world is facing a demographic crisis that most governments have not prepared for.
Already, the crisis is on the ground
Japan’s population dropped by 908,574 in 2024. 45 out of 47 prefectures lost residents.
Since 2018, the working-age population (15-64) has dropped below 60%.
The construction industry is facing a severe labor shortage. There are 4.6 jobs for each applicant. This has caused infrastructure projects to be slowed down across the country.
Next came the closures of nursery schools. The first half of the year 2025 saw 22 childcare centers close, an increase by 70% from the prior year.
It wasn’t because there was a shortage of childcare. The problem was that there were not enough children. Japan’s fecundity rate reached 1.15 per woman in 2024 with only 686,061 babies.
According to projections, the number of workers could drop by as much as 11 million by 2040.
Illustration: Devesh Kumar
South Korea has even worse numbers. In 2024, South Korea’s fertility dropped to the lowest rate in the world: 0.75.
Seoul saw a drop to 0.64. Bank of Korea projects that the Korean economy will begin to shrink by 2047.
The Government has invested heavily in pro-natal incentives. By 2021 the government will have spent KRW 42,9 trillion (approximately 32 billion dollars) on these. However, there is minimal effect on fertility rates. All of this has not reversed the trend.
China’s population is changing even more rapidly. The fertility rate has dropped to just 1.2 per woman after decades of one-child policies.
Property market under pressure as the demand for property in a nation with less young families is softer.
It’s not just Asia. Italy has a fertility rate of 1.27. Spain has a fertility rate of 1.32. Poland is at 1.33. The United States is now at 1.6, which is below the replacement rate (2.1).
This is not a theoretical issue. It’s here.
Culture is not the reason why people don’t have children
It is easy to point the finger at cultural changes: individualism and materialism. Young people are also more focused on their careers.
This ignores the reality of economic hardship that millions are facing.
The housing costs are rising faster than the wages. Many major cities delay homeownership until people are in their 30s and 40s.
Healthcare is costly. Healthcare is costly. In a developed country, the cost to raise a child until adulthood can be more than $300,000.
The intensity of work has increased. Japan and South Korea have a reputation for long, brutal work hours. But the trend is wider.
Where parental leave is offered, it’s often unpaid or minimal. Although remote work increased during the pandemic and many employers have now reduced it,
Then there’s the burden of care. Even though women are now more educated and in the workforce, care for children and elderly people still falls disproportionately to mothers.
Goldin says that it is not about the women making choices alone, but about the absence of equal and committed partners.
Jobs have predictable characteristics. Goldin stated that one can find a job closer to their home with less hours.
We know that women are able to balance work and family.
Women can adapt to this by choosing jobs that offer flexible working hours or shorter commutes. Men, on average, don’t. This structural imbalance makes it increasingly difficult to have children and maintain economic stability.
The decline in fertility is not a sign of moral failing. This is a natural response to the economic system designed for households with lone earners in a time when both spouses must work.
Economists are afraid of the real impact, which comes much later.
In two decades, the biggest economic effects of falling birthrates today will be felt.
Wolfgang Lutz, founder of the Wittgenstein Centre for Demography has tried to explain to policymakers this gap.
Lutz, told that the current fertility rate will have few consequences for the next two decades since it will affect only the number children but not the number adults.
Fewer children being born today means fewer kids in schools. This reduces the short-term cost. The government spends less money on infrastructure for education and childcare.
In 20 years these missing children will become workers. Labor supply contracting. The GDP grows at a slower pace. Tax revenues decline. The social safety nets are under pressure from both sides: less workers pay in and more retirees withdraw out.
Lutz sees an opportunity that most governments ignore.
The window can also be used for improving the education of each child, by spending more per one when they are less.
More resources for each student when the cohorts are smaller Better skills. Better skills. Most countries don’t invest in these areas.
Human capital is his key insight.
Lutz stated that the skills, education and human capital of the workers will be key factors in the future.
Numerous studies show that higher productivity and better skills can compensate to some degree for the lower number of workers.
Other words, less workers don’t have to be a disaster if they are well-trained and prepared to use new technologies. This requires more strategic investments now.
Paying people to give birth is not a good idea
talked with Ronald Lee from UC Berkeley. Ronald Lee is a professor emeritus of demography who has been watching governments trying to increase fertility for many decades. He is direct in his assessment.
The government has been unable to increase fertility in any way. Their policy interventions are at best a temporary blip, followed by a drop.
The most striking example is South Korea’s extravagant spending. Fertility continued to fall despite aggressive incentives.
France is known for its generous approach to family life. Its fertility rate, at 1.9, is also the highest in Europe. Even that level is below the replacement rate and on the decline.
Cash incentives cause a short-term increase in fertility as couples plan their births around the payments. Then, it falls off. Even housing subsidies and luxury cars giveaways failed to reverse this trend.
Lee draws an important distinction regarding what is actually at issue.
He explained that “low fertility” isn’t a problem until the number of births drops to around 1,4 per woman.
If you focus on the GDP growth rate, then yes, it will fall roughly in proportion to the decline of the population.
The individual may not even feel any poorer. The economy as a whole may grow more slowly or even not at all. This is important for the government’s revenues and debt sustainability.
The political reaction is usually misaligned. The leaders chase growth in GDP by increasing birth rates. However, raising fertility levels is not possible. It is better to adapt.
What works? Adaptation rather than reversal
What can governments do if they can’t reverse the decline in fertility? It is possible to build economies with less people.
A better childcare infrastructure for households with two earners is essential.
Those countries with affordable universal childcare do not have higher rates of fertility but higher levels of female participation in the workforce. This is important when there’s a shortage of labor.
Reform of the Work includes flexible work schedules, remote working options and parental leave. Japan has been experimenting with a four-day week. In some European countries, paternity leave is mandated to balance the care load.
Immigration has the greatest impact on labor shortages. In 2025, the number of foreign workers in Japan reached 3.5 millions. This was a new record.
Immigration is a controversial issue almost anywhere, but even high levels of immigration do not offset the natural population decline.
Automation and productivity provide an alternative path. Japan invests heavily in robots to help with eldercare, construction, and agriculture.
Automation and AI can’t completely replace human labor, but can increase the productivity of smaller teams.
Lutz’s main recommendation is to invest in education and training . The economic output can be maintained by fewer workers who are more skilled.
It is necessary to rethink education systems, and ensure that skills are continually upgraded throughout a career.
Investment in the care economy cannot be avoided. The elderly population needs eldercare services, social services, and healthcare.
Those who invest in infrastructure early will be better off than those who wait until the crisis has reached its peak.
Illustration: Devesh Kumar
Close the window
The population decline isn’t a catastrophe that happens overnight. Slow-moving structural changes give societies the time they need to adjust. This time, however, is limited.
They are the children who will not be born between 2025 and 2026, but they’ll still need to work in 2045. The children born in 2025 and 2026 are not the workers who will be available for work in the year of 2045.
Demographics has already been set for the next 20 years.
The countries that ignore this problem or treat it as an unimportant issue will suffer the most economic damage. Labor shortages are likely to be more severe. Fiscal squeeze will become tighter. Care crisis will worsen.
The countries who use the next twenty years as a strategic time have many options. If you invest in education today, the workforce will be smaller and more productive by 2045.
Dual-earner households can manage their transition better if you reformulate work structures. By creating immigration routes now, you can partially reduce the labor shortage.
It’s not a question of whether or not populations will decrease. This is already the case in many parts of the globe.
In 2050, South Korea, Japan and other countries, such as Italy, Spain and Spain will be smaller than today.
It is a question of whether the governments are going to use their two-decade window, which they only have left, in order to create economies that will function even with less people or if they’re just going waste time by pretending that the decline can still be reversed through cash incentives and patriotic appeals.
Claudia Goldin has identified the root problem as a mismatch in economic structures with modern family reality. Ronald Lee documented failures of pronatalist policy. Wolfgang Lutz has mapped out the timeline as well as the opportunities.
Research is thorough. Data is unambiguous. Empty nurseries and job openings are warning signs.
We lack the political will needed to take action on what we know.
The ICD published the article Falling Birth Rates Could Upend Global Economy in 20 Years: Here’s What to Expect first.
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