Depopulation Fears Are Overblown

Depopulation Fears Are Overblown

Fewer people doesn’t mean fewer ideas—richer, better-educated workers can sustain growth, while the real data shows depopulation raises wages, eases scarcity, and defies the panic.

Lipton Matthews for American Greatness 

Pick up any newspaper covering demographics, and you will find the same story told with increasing urgency. Birth rates are at historic lows across Europe, East Asia, and North America. Italy and South Korea are offering cash payments to couples willing to have children. Elon Musk posts about population collapse with the frequency of a man who believes civilization itself is at stake. The concern, at its core, is economic: fewer people means a smaller workforce, a shrinking tax base, unaffordable pension systems, and eventually an innovation drought as fewer minds engage with the hardest problems. Thinkers like Marian Tupy are right that population genuinely matters for innovation. More people means more potential Einsteins, more ideas being combined, more chances that someone somewhere cracks the next great problem. Because ideas can be shared at essentially zero cost, the economy is not a fixed pie, and human creativity scales with human numbers.

But the leap from “population matters for innovation” to “declining populations spell economic catastrophe” is not supported by what is actually happening in the countries where it is already occurring. The data from those places tells a strikingly different story, one of rising wages, stable employment, and manageable trade-offs, and the panic surrounding depopulation is simply not proportionate to the facts.

The intellectual foundation of the depopulation panic rests on a specific assumption buried inside standard economic models of growth: that the raw number of people engaged in research drives the production of new ideas. Fewer researchers means fewer ideas, which means stagnation. This is a coherent concern, but it rests on treating headcount rather than knowledge per person as the engine of innovation, and a 2024 paper from the University of Göttingen challenges this assumption directly.

When human capital, meaning the knowledge and skills that people acquire through education, is used as the input to innovation rather than raw bodies, the pessimistic conclusion reverses. A population declining at 0.5 percent per year, which is the UN’s own long-run projection for global population by 2100, can still generate income per capita growth of nearly 2 percent per year, which matches the entire 20th-century American average. The model producing this result was calibrated against the actual historical trends in fertility, education, and income observed in the United States across the 20th century, so it is not a theoretical curiosity disconnected from real experience.

The mechanism works through the quality–quantity tradeoff that is already visibly happening across the developed world. As fertility falls and incomes rise, families invest more heavily in fewer children. Each new generation enters the workforce more knowledgeable than the last, and the value of what they know grows over time, even when the time they spend studying stays roughly constant. A medical degree teaches you more today than it did 50 years ago, simply because there is more medicine to learn. The shrinking headcount is offset by the growing depth of each person’s knowledge, and crucially, this result holds even when returns to education are diminishing, which is the most empirically realistic assumption one can make. You do not need implausible conditions for an economy with a declining population to sustain healthy growth. You need the educational investment dynamic that wealthy societies are already exhibiting.

Moving from theory to evidence, the most direct test of the depopulation hypothesis comes from a study that examined 19 countries with genuinely declining populations, not just aging ones or low-birth-rate ones, but countries where the total number of people was measurably falling. Sixteen were former Soviet bloc nations where populations fell due to emigration and low fertility after 1990, and the remaining three were Japan, Italy, and Portugal, developed economies that experienced decline more recently. This is the first empirical study of its kind focused specifically on absolute population decline rather than demographic structure, and its findings are uncomfortable for the catastrophist narrative.

In most of these 19 countries, real GDP per capita grew faster than the world average during the period studied. Unemployment was more likely to have fallen than risen, labor force participation was more likely to have increased, and real wages went up. The economists behind the study were unambiguous in their conclusion: the feared economic deterioration simply did not occur in the countries where populations were actually falling. Their econometric analysis, using the pooled mean group estimation method, found that while population size is a statistically significant factor, it has almost no bearing on per capita GDP outcomes.

The underlying logic is not difficult to follow. When labor becomes scarcer, workers acquire more bargaining power and wages rise. Businesses facing higher labor costs invest in labor-saving technologies to stay competitive, which raises productivity. People who were previously unemployed or underemployed find jobs more easily because employers cannot afford to be selective. Families with fewer children redirect spending toward better education and healthcare for those children and toward a higher quality of life for themselves. The economy reorganizes itself around the people who are actually there, and it does so in ways that tend to improve average wellbeing even as aggregate output grows more slowly.

These findings on wages and employment are echoed by a separate body of evidence examining OECD countries more broadly. The most persistent specific fear about demographic decline is the workforce collapse: fewer working-age people means fewer workers, and fewer workers means the economy seizes up. This fear has driven pro-natalist policies across Europe, justified mass immigration programs, and shaped a generation of pension reform across the developed world.

Looking across all OECD countries in 2018, however, there is no meaningful statistical relationship between how aged a country’s population is and how many of its people are in paid employment. Countries with older populations are not countries with smaller workforces, and the regression of employment rate on share of population aged 65 and over produces a coefficient close to zero that is not statistically significant. The same absence of relationship holds for hours worked per capita. Among the ten OECD countries that had already seen the greatest decline in their working-age share, including Japan, Germany, Finland, Italy, Greece, Latvia, and the Netherlands, there was no deterioration in either employment levels or labor productivity after the working-age peak passed. The feared collapse did not materialize in the places where the demographic shift was already most advanced.

The reason is that labor markets respond to scarcity in exactly the way economic theory predicts. When workers become harder to find, wages rise, older workers defer retirement, and people who had left the workforce for various reasons find it worthwhile to return. The workforce is not a fixed number mechanically determined by the age structure of the population. It responds to the demand employers express through wages and hiring conditions, and there is considerable evidence that this adjustment mechanism is robust enough to absorb significant demographic change.

What is perhaps more striking is the evidence running in the other direction. In countries where the working-age population was growing rapidly, young people had a significantly harder time finding work. Youth underemployment was measurably higher where working-age populations were expanding quickly. Australia, which maintained population growth of 1.5 to 1.7 percent per year through elevated immigration in the decade before COVID, had youth underemployment more than twice the G7 average, making it an extraordinary outlier within the OECD. Adding more workers to the labor supply did not create more opportunities for young people entering the workforce. It increased competition for a pool of jobs that did not expand proportionally with the labor supply, and young workers bore the cost.

Income distribution follows the same pattern. Countries with contracting working-age populations had higher income shares going to the poorest 20 percent of households, a relationship that held with statistical significance across the OECD. When workers are scarce relative to demand, labor captures a larger share of national income, and because lower-wage workers benefit most from reduced competition, the gains are concentrated at the bottom of the wage distribution. Rapid population growth, by contrast, suppresses wages and inflates returns to capital and property, producing outcomes that favor large corporations and landlords over the majority of working households.

Building on this picture of how labor markets actually behave, the broader macroeconomic dynamics of a declining population are consistently more favorable than the conventional narrative allows. When population growth slows or reverses, the amount of capital available per worker rises. There is more accumulated wealth, more machinery, more infrastructure per person, and in a standard economic framework, more capital per worker translates into higher productivity and higher wages.

Calculations using UK data make this concrete. If UK population growth falls from 1 percent per year to zero, sustainable consumption per worker rises by £2,500, a gain of 5.5 percent. If the population moves from growing at 1 percent per year to shrinking at 1 percent per year, the gain in sustainable consumption per worker doubles to £5,000, or 11 percent. These are not one-off adjustments but permanent gains that persist for as long as population growth stays at lower levels. The reason is that a growing population requires constant investment just to maintain existing levels of capital per person, because roads, schools, hospitals, and housing must all expand alongside the population, consuming savings that could otherwise raise living standards. When population growth slows, this investment burden eases and more national income becomes available for consumption rather than merely keeping pace with demographic expansion.

This dynamic has a direct historical parallel in the UK. Research on the Industrial Revolution period found that the rapid expansion of the British population significantly held back growth in average real wages during an era of rising aggregate GDP, and that wage growth would have been substantially higher had the population not accelerated at that time. The same logic runs in reverse when populations shrink.

Ronald Lee, one of the world’s leading demographers, led an international research team to estimate what level of population growth best supports living standards over the long run. For the UK specifically, the calculations carried out by Professor James Sefton as part of Lee’s wider project found that the population growth rate most consistent with the highest sustainable standard of living per person was actually a negative one. Lee’s own published conclusion was that modest population decline tends to support rather than undermine material living standards. Separately, Lee and Mason’s analysis of National Transfer Accounts across 40 countries found that slightly negative population growth rates maximize per capita consumption once the capital costs of providing for a growing labor force are properly accounted for, a result that held across 17 high-income countries.

The broader macroeconomic evidence supports this view. As populations age and capital per worker rises, the return on capital falls, and real interest rates on UK government bonds declined from around 3 to 4 percent in the mid-1980s to deeply negative territory by the early 2020s, a pattern mirrored across all rich countries where populations have aged. Rather than being a crisis signal, this trend is precisely what one would expect from societies accumulating more wealth relative to their workforces.

The fiscal case for population growth as a response to aging is typically presented as a straightforward accounting exercise. More young workers means more taxpayers, a lower dependency ratio, and a more sustainable base for funding pensions and healthcare. This argument is not wrong as far as it goes, but it is systematically incomplete because it omits the cost of the infrastructure that every additional person requires.

Every new person added to a population requires roads, schools, hospitals, water systems, and housing. Infrastructure costs run at roughly 1.68 percent of GDP for every 1 percent of annual population growth, and this figure likely understates the true cost because population density makes infrastructure non-linearly more expensive. The underground rail networks, high-rise schools, desalination plants, and waste processing facilities that become necessary in high-density environments represent a qualitatively different order of expenditure from what lower-density populations require.

When five different population growth scenarios for Australia are modeled with infrastructure costs properly included alongside the costs of pensions, healthcare, and aged care, the savings from lower infrastructure and education spending in slower-growing or declining populations more than offset the higher costs associated with a larger elderly share of the population. A stationary or gently declining population is actually less expensive to run in total than a rapidly growing one, once the full balance sheet is examined rather than only the age-related spending side of it.

The UK context reinforces this finding. Britain’s chronically low savings rate has left its schools, railways, roads, and hospitals persistently underfunded relative to the demands that a growing population places on them. The OBR’s long-run fiscal projections show that even under the higher-immigration scenario, UK government debt remains on an unsustainable upward trajectory, with the gap between high- and low-migration scenarios amounting to roughly 50 percentage points of GDP by 2072, representing the difference between debt at around 220 percent of GDP versus 270 percent of GDP. Higher immigration moderates the fiscal problem to some degree, but it does not resolve it, and it generates the infrastructure and housing pressures that fall most heavily on lower-income households.

On the subject of housing, the distributional consequences of population decline deserve more attention than they typically receive. For example, population growth in dense urban economies through immigration is a primary driver of house price inflation, because land supply is fixed while demand keeps rising, and the result across much of the developed world has been a substantial transfer of wealth from younger renters and first-time buyers toward older property owners. A declining or stabilizing population softens land values relative to incomes, makes housing more accessible to working-age people, and raises inheritance per capita as a smaller cohort of younger people inherits from a larger older generation. These are real improvements in living standards that do not show up in aggregate GDP figures but matter considerably to the households experiencing them.

However, none of the above is an argument that aging populations are without genuine challenges. Fiscal pressures are real; the age profile of government spending means that older populations generate substantially higher net public expenditure per person, and the long-run trajectory of public debt in many rich countries requires a genuine policy response involving more flexible retirement patterns, longer working lives, and sustained investment in skills across longer careers.

Furthermore, population growth matters for economic dynamism, and a larger pool of human minds does carry real value for the generation of ideas. But the quality and depth of knowledge that each person brings to the economy is a more important constraint on innovation and growth than the raw number of people, and that quality is rising in exactly the countries where fertility is lowest. The depopulation panic mistakes a genuine and manageable challenge for an impending catastrophe, and in doing so, it drives policy responses, from ineffective pro-natalist subsidies to infrastructure-straining immigration targets, which may well make the underlying problems worse rather than better.