Birth rates across the globe have fallen sharply over the past several decades. This trend is talked about frequently among policymakers—most people suggest that we need to have more children to continue to support the economy. The key assumption that this relies on is that having fewer babies is bad for future economic growth. The reasoning is intuitive: a shrinking population means fewer workers, more retirees depending on a smaller workforce, and therefore an economy that slows down.
A recent working paper from the National Bureau of Economic Research challenges this conventional wisdom. To better understand the relationship between birth rates and economic growth, researchers looked at what has actually happened in national and state economies over the past 75 years as birth rates have declined. Today, I wanted to discuss some of the study’s key findings.
Does a shrinking population actually slow down the economy?
According to researchers from the National Bureau of Economic Research, the global birth rate fell by more than half between 1950 and 2025. In 1950, the global birth rate was 3.78 per 100 people, and in 2025, the global birth rate was 1.71 per 100 people. This means that in 2025, 1.71 people were born for every 100 people across the world.
To see how this demographic shift affected economies, researchers looked at data from 1970 to 2020 across all countries with populations exceeding one million in 2019 and across 722 commuting zones across the United States. Tax havens, such as Luxembourg and Singapore, and crisis-affected states, such as Yemen and Venezuela were omitted due to unusual trends around economic growth and population growth.
The authors of the paper find that lower birth rates are associated with higher growth rates in income per worker. Across the countries in the study, a one percentage-point lower birth rate was associated with 26.8% higher gross domestic product per worker. At the same time, total economic output did not shrink. In other words, higher incomes per worker didn’t only occur due to there being fewer workers–the total size of the economy stayed steady too.
When labor becomes scarce, industries and firms adapt by innovating labor-saving technologies. Firms in places with falling birthrates have more incentive to automate tasks and reorganize work to compensate for a smaller workforce. This explains why per capita gross domestic product rises while birth rates fall: each worker becomes marginally more efficient due to innovation.
In countries with lower birth rates, researchers found higher total factor productivity, which measures how efficiently an economy generates output from a fixed amount of capital and labor. These countries also saw a higher share of high-tech exports and higher rates of patenting in labor-saving industries like information technologies and automation.
But isn’t it possible that there are some other factors that are associated with low birth rates in countries that would also be associated with innovation of these kinds of technologies and industries? What if there is some underlying characteristic among countries with low birth rates that better explains such economic growth?
How can we establish causality between low birth rates and economic growth?
The researchers use two main strategies to determine whether birth rates actually cause per capita economic growth. First, the researchers lag birth rates by 20 years rather than using current population growth. This reflects the idea that newborns take around two decades to enter the workforce. Researchers found no impact on gross domestic product before the 20 year mark.
Second, researchers isolated the demographic changes associated with lower birth rates. Lower birth rates cause two simultaneous demographic changes: total population size decreases, as death rates begin to outpace birth rates, and the average age of the workforce increases. To simulate which of these demographic changes is responsible for economic growth, the researchers analyzed casualties from World War II across countries.
Civilian war deaths reduced population across all age brackets without significantly altering the age distribution, whereas military deaths were heavily concentrated among young men. Civilian deaths, which reduce a country’s population among all age groups, were associated with lower gross domestic product per capita. However, military deaths, which were concentrated among young people, were associated with higher gross domestic product per worker. In other words, higher economic output per worker is specifically associated with a shrinking and aging workforce, not just a smaller population.
Falling birth rates still present a challenge for policymakers. While it appears that per capita income and production actually benefit from lower birth rates, there are other problems associated with a smaller workforce, such as a smaller tax base for social programs that serve older residents at disproportionately higher rates than younger residents. However, this does suggest falling birth rates might not be as bad for the overall economy as we once thought.
