The present TFR in the U.S., at slightly above 2.0, is below the replacement rate of 2.11. However, because our low fertility only goes back to the 1970s, the age structure of the population is such that we have an excess of births over deaths (by nearly 1.6 million, or 6 per 1000). Further, as we'll see in the next section, immigration plays an important role in contemporary population growth in the U.S.
However, if we did not have immigration, ultimately the U.S. population would decline if the TFR were to remain at its present level. Indeed, the lowest series of Census Bureau population projections shows a peak at 291 million in 2030, after which the population is projected to decline (cf., assumptions).
Perhaps more relevant for this section would be to consider populations in Europe, where the TFR at 1.5 is well below the replacement level and has been low for some time, the rate of natural increase is already negative (-0.1 percent per year), and immigration is distinctly smaller than in the U.S. Reflecting these factors, the 1996 World Population Data Sheet of the Population Reference Bureau shows Europe's present population as 728 million, with very slow growth projected to a total of 745 million by 2010 followed by a slight decline to 743 in 2025.
The prospects of population stabilization or decline are not new. During the 1930s, when the long-term decline in fertility was accelerated by the Great Depression, many observers were concerned about the potential adverse consequences of below-replacement fertility (cf., stage of incipient decline).
Some economists argued that population growth stimulated economic growth by contributing to greater investment. In this view, population growth resulted in more consumers and hence greater demand for goods and services, necessitating in turn greater levels of business investment. In addition to this direct effect, it was held that businessmen would be more optimistic about a future with population growth, and thereby more willing to make investments for the future. Hence, the fear expressed was that population stabilization would choke off investment, leading ultimately to economic stagnation.
Demographic consequences of below-replacement fertility
Before considering the likelihood of this stagnation scenario, it is useful to focus on the demographic consequences of below-replacement fertility. A useful concept in theoretical demography in this regard is that of a stable population. Such a population is one in which there are constant age-specific fertility and mortality rates, and no immigration.
If the total numbers of births and deaths just balance each other out, the result is a special case of a stable population called a stationary population. this is the zero population growth model, in which the TFR is exactly at the replacement level and b = d = 1/life expectancy at birth.
However, if fertility rates are higher or lower, the resulting stable population will be either growing or shrinking, respectively. Regardless of whether growth is positive, negative, or zero, however, a stable population will be one with a constant age structure and a constant rate of growth. Hence, stable populations provide good models for assessing the long-term consequences of below-replacement fertility.
For example, a stable population with a life expectancy at birth of 75 and a TFR of 1.6 would be shrinking at a rate close to 1 percent per year and have an average age of almost 45. Only 14 percent of the population would be under age 15, while 24 percent would be age 65 or older (almost the reverse of the current figures for the U.S. population of 22 and 13, respectively).
Table III.B.1 from McNicoll (presented in class) provides additional examples of age distributions of stationary and shrinking stable populations. The table documents the fact that as fertility declines, the population becomes distinctly older.
An alternative approach to assessing the demographic consequences of maintenance of low fertility is to make assumptions about the future course of fertility, mortality, and the volume and age/sex composition of immigration, and then grind out the resulting population projections.
Assuming replacement or below-replacement fertility, such projections indicate that as we move into the next century in the U.S. the median age of the population will increase from its present level in the low 30s to the high 30s or low 40s; the percentage aged 65 and over will rise from 13 to 18-22; and the percentage under age 18 will fall from nearly 30 to 19-24.
These changes in the age composition of the population are substantial, and they have provoked concerns among some observers attempting to evaluate the potential economic and other consequences of low fertility. The French demographer Alfred Sauvy has characterized a stationary population as one of "old people ruminating over old ideas in old housing."
While there are numerous sectors that could be considered in assessing the consequences of low fertility, we'll look briefly at two broad aspects: consumption, saving, and investment; and the labor force.
Consequences for consumption, saving, and investment
Since age is an important factor in the demand for many goods and services, changes in the age composition of the population will alter patterns of consumption expenditures. This notion reflects the business usage of the word "demographics": for goods and services whose demand is associated with distinct stages of the life cycle, the aging of the population resulting from continued low fertility will inevitably bring about changes in demand. Most notable in this regard will be increasing demand for health care services and reduced demand for goods and services oriented toward youth.
While the composition of consumption will clearly shift over time, the overall or per capita levels of consumption will depend on economic growth, which in turn will reflect both saving and investment as well as technological change. The life-cycle hypothesis suggests that saving itself will vary systematically over the life cycle (cf., consumption and saving over the life cycle; consumption smoothing).
However, some have argued that low fertility will lead to greater saving, because of the fact that households will have fewer dependents and a longer period during which there are two earners in the household, while others have held that low fertility will result in less saving due to the fact that a higher proportion of dissavers (the elderly) will be in the population. Further, there is some empirical evidence suggesting that dissaving by the elderly is not as high as one would expect from a simple life-cycle model in which lifetime income is exhausted by lifetime consumption (cf., bequests).
Overall, then, there appear to be offsetting effects of sustained low fertility on household saving. In addition, saving by households is only part of the total national saving available to finance investment. Hence, it should not be surprising to learn that most observers conclude that below-replacement fertility is unlikely to bring about marked changes in saving in the economy.
In this vein, it is also worth noting that there is no convincing evidence to support the stagnation hypothesis that sustained low fertility would stifle investment activity. Ongoing technological change brings about opportunities for investment that do not depend on population growth (cf., Schumpeter's "creative destruction" -- new products, new ways of doing business, etc.). Further, the growth in per capita incomes associated with technological change as well as spatial population redistribution both imply that there will be stimuli to investment even with below-replacement fertility.
Implications for the labor force
A "graying" of the labor force is an inevitable result of sustained low fertility, as is evident from Table III.B.1. Some individuals have expressed concern about the consequences for worker productivity and mobility of an older work force. It does seem likely that worker mobility will be lower with a higher average age of workers, and this may inhibit the ability of labor markets to adjust to changing economic conditions.
Some policies can facilitate worker mobility, such as easier and earlier vesting of pensions and provision of better labor market information and relocation assistance (cf., Scandinavian active labor market policies). However, it should be acknowledged that with an older work force, there may be greater upward pressure on wages in order to attract workers to growing firms, industries, or areas.
Concern about the productivity of an older labor force often underestimates the importance of on-the-job training as a factor contributing to workers' skills. Some have argued that older workers may be more resistant to change and innovation, but this is likely to depend in large part on whether workers perceive innovation to be threatening or beneficial.
Retraining of older workers and periodic "recycling" in formal training are likely to become more prevalent (cf., lifelong education). Overall, though, the aging of the labor force that will result from maintenance of below-replacement fertility does not appear to pose serious problems for the ability of workers to contribute to continued economic growth.
Consideration of possible effects of sustained low fertility on consumption, saving, and investment as well as on the productivity and mobility of the labor force fail to provide much source for concern regarding the economic consequences of below-replacement fertility. However, McNicoll introduces another dimension, and that is distribution within society.
In particular, in a low-fertility setting, children from relatively large families (with 2 or 3+ children) constitute the overwhelming majority of children, even though they are in the minority of households. For example, in McNicoll's example of West Germany's TFR of 1.4 with plausible assumptions about the distribution of women across parities, 80 percent of children are born to women with two or more children, even though such women represent only 43 percent of the female population.
This example raises the issue of intrafamily externalities again. As McNicoll notes (p. 228), "A large family dilutes the resources available for the education of each child." Further, if (similar to past experience at higher levels of fertility) financially better-off women with higher education tend to have one child or none, while lower-income families tend to have two or more children, households with relatively high fertility are households where child poverty is likely to be more prevalent. Further, the greater incidence of poverty among high-fertility households is likely to be transmitted across generations.
To put the matter a bit differently, in a below-replacement fertility setting, there is a relatively high probability that children from households with two or more children are disproportionately likely to be brought up in poverty and to become poor themselves. This intergenerational transmission of disadvantaged socioeconomic status is McNicoll's primary concern about the potential adverse consequences of sustained low fertility.