Fertility rates and Human Capital

The human population has always grown, but in the last 250 years, it has grown so much quicker. Everyone believed that the human population would always grow, and this growth was bad. However, researches show us that by the early 1970s, fertility rates declined. But what’s the fertility rate, and how it affects families? 

The fertility rate is the average number of children born over the average woman's lifetime in a given population. With a population with fertility below 2.13, the population will eventually decline in the long run.  Do you feel that the world is depopulating though? Don’t you think that the line at the supermarket would be faster if fewer people were there? It’s easy to gather the impression that we are living in a world that’s ever more crowded. For example, traffic grows, and we think that the world is crowded, and we get into the trap of thinking that population growth is evil. Indeed, It’s not. 

Charles Darwin once said that any species that has abundant food, prosperity, peace, and fails to have children need to replace itself. So, you may be asking, “What effects fertility rate will have in society, including family?”

Let’s make a sure assumption: the world is projected to depopulate. Many of us will think that this could be all good, but we need to consider the consequences.

If we stop to think about the economic system, we soon realize that our modern economies require growing levels of human capital.

What is Human Capital?

Human capital refers to knowledge, skills, cognitive capacities, information that people have. Modern capital is based on knowledge and skills, not physical strength but a mental command of different types of information and skills. Human capital is that capacity that the child acquires to be competent out in the marketplace. The more they have learned, the more valuable they are. Human Capital is the foundation of Modern Economies. Any economy that doesn’t’ have substantial in its people human capital won’t become a modern or rich economy. In summary, Human capital describes basic human resources which allow human beings to be productive. Why is this last principle important?

It’s impossible to sustain economic growth without human capital increase. This latter can be increased either by getting everybody educated and improving each person’s productive capacity, or more people are needed. The way that we measure economic progress is through the gross domestic product. Many people don’t realize that when the gross domestic product grows most of that growth is population growth. Gross domestic product is defined as the number of people workers times their productivity.

Modern demographic trends in all rich countries mean that GDP growth won’t come anymore from a growing number of workers. If we think, a greater number of US workers is projected to be stagnant for at least the next two decades, and Europe has even a worse problem with its working-age population. So, if the working-age population is shrinking, how can we increase human capital? If we have fewer and fewer workers, each one of them has to get at much more productive to even keep the economy from shrinking. 

Without more people, the economic increase can only come from our working either harder or smarter. The other option, however, is to innovate labor-saving technology. However, innovation requires a high level of education, and our total capacity to innovate is also affected by the declining population. We have fewer people who are there to innovate. Only a limited number of people have the ideas, capacity, and brilliance to innovate. 

No matter how you look at it, falling fertility limit the number of people available to innovate. Unless fertility increases or education levels improve, we are all going to be working harder in the future without getting any richer.

I know there can be different points of view about this topic, but I believe that families play a huge role in prosperity and peace in the world. We can all be part of making the world better by starting in our families.


Sources:

The New Economic Reality: Demographic Winter, Part 1 

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