Zero Population Growth
Europe Becalmed?

In Discussion Paper No. 179, Research Fellow John Ermisch and Programme Director Heather Joshi discuss the long-term consequences of recent demographic developments for social welfare in Europe. The population of Europe as a whole will continue to grow, although more slowly, into the early 21st century, and then it is likely to stagnate rather than decline. Does slow or zero population growth inhibit the capacity of the economy to improve the welfare of its citizens?

Ermisch and Joshi take a broad view of social welfare, which encompasses not only state and private expenditure but also aspects of the 'quality of life', such as increases in health, life expectancy, and time spent on leisure and on domestic responsibilities. Production of services within the household, which are consumed by household members and not marketed, is properly viewed as part of sustainable consumption. Several studies suggest that such production is equal to about a third of GDP, but that this proportion is falling as a result of increased labour force participation among females aged 15-64 and falling family sizes. This shift in production towards the market sector implies that the rate of growth of sustainable consumption per head and social welfare has been smaller in recent decades than is suggested by the rate of GDP growth.

The low fertility of the 1970s and 1980s is now being reflected in a decline in the rate of growth of the labour force in most European countries. Ermisch and Joshi discuss whether this slowdown may eventually tend to reduce Europe's rate of economic advance. They argue that if new technology is embodied in new capital equipment and latest knowledge is embodied in labour force entrants, a stagnant population suggests slower accumulation of capital and of knowledge, and that increases in sustainable consumption per head can only be achieved through technological developments. But there may be countervailing influences. If capital accumulation can be sustained at a rate in excess of the rate of technical progress, this would push up real wages and stimulate the adoption of more capital-intensive methods of production, raising sustainable consumption per head even if the labour force remains constant. But this entails maintaining investment in the face of a falling rate of profit and a falling share of profits in national income, which may be difficult to achieve.

Changes in fertility and mortality since 1960 have reduced the proportion of the population aged under 15 and raised the proportion aged 65 and over in all European countries except Ireland. Ermisch and Joshi note that the implicit intergenerational contracts sometimes attributed to pay-as-you-go pension schemes are strained when generations differ considerably in size: it may prove very difficult for the small post-1970 generations to provide the high levels of state pensions promised to the baby-boom generations. One way in which this conflict may be resolved is by reversing the trend towards earlier retirement, which has been encouraged by high unemployment.

The relationship between recent fertility declines and the economy is of particular interest. The obstacles to combining motherhood with a full-time career constitute an increasing disincentive to childbearing, since the opportunity costs of parental time devoted to reproduction increase as labour productivity rises. Whether women will react to this by avoiding rather than postponing childbearing is still unknown. The influence of economic factors on reproductive behaviour is affected by the division of labour between men and women, both between and within paid and unpaid activities. Fertility decline might be arrested or reversed by changes which make it easier to combine motherhood with employment. This has occurred in many countries of Eastern and also Northern Europe, where rates of female labour force participation and of fertility both tend to be higher than in the rest of Europe.

Demographic Change, Economic Growth and Social Welfare in Europe
John Ermisch and Heather Joshi

Discussion Paper No. 179, April 1987 (HR)