The U.K. is facing a brewing demographic crisis that could further complicate the country’s declining productivity rates, which the Labour government aims to address.
Some parts of the U.K. are witnessing their lowest birth rates in about 90 years, comparable to those during World War II. With a productivity crisis looming, the persistently low birth rates could spell more trouble for the U.K. than just an aging population.
England and Wales are experiencing a drop in fertility rates to 1.44 children per woman, based on data from the Office of National Statistics released on Monday. Despite this, the report highlighted no shortage of women of childbearing age between 15 and 44.
If this trend persists, the U.K. may face a decrease in working-age population in the future, adding further strains to the economy and potentially necessitating increased immigration to meet labor market demands.
Jonathan Portes, an economics and public policy professor at King’s College London, warned about the demographic trends in an interview with the Financial Times, emphasizing the importance of high immigration rates to prevent a fate similar to Japan or South Korea for the U.K.
Amidst alarming productivity rates and youth unemployment in Britain, there is a pressing need to boost productivity in the face of an aging population.
Enhancing Productivity in an Aging Economy
Considering current death rates and the absence of substantial immigration, the U.K. is falling far short of the recommended replacement rate of at least 2.1 children per woman.
The ONS stated that the fertility rate in England and Wales has been below two children per woman since the 1970s, with projected population growth largely attributed to net migration.
The correlation between birth rates and productivity is crucial for economic growth. The IMF highlighted in a recent report that a decline in working-age population due to low birth rates can hamper economic productivity and strain social support systems.
The government faces challenges in balancing economic growth with population dynamics, including options like raising retirement age and expanding social services. Demographic shifts also impact housing, education, and public debt.
While Italy and Germany also confront the risks associated with an aging population, Nordic countries have introduced innovative strategies to promote higher birth rates, such as childcare subsidies and extended parental leave. Hungary offers incentives for larger families, and Greece invests heavily in pro-child policies annually.
Despite fare better than some European peers, the U.K. must address its low productivity concerns promptly to avert a worsening economic scenario. If fertility rates continue to decline, the U.K. could face a compounded demographic crisis that might significantly impact its productivity and economic well-being.
