Population ageing and low birth rate: key drivers of future economic development and public policies

Funcas, the economic Spanish think tank created by CECA (Spanish Confederation of Savings Banks), has published a report with different articles by economists, analyzing the relationship between demography and the economy along different dimensions, with focus on the Spanish case. As a general conclusion, it highlights that demographic change, resulting from the increase in longevity and the decline in the birth rate, is one of the most transformative forces in the global economy, comparable to the challenges posed by climate change or technological advances, so that addressing the multiple dimensions of the demographic challenge will be a priority of public policies in the coming decades.

Key findings of the report:

• The global demographic challenge: Based on UN data, the global fertility rate is expected to fall to 2.1 births per woman (replacement rate) by 2050. Currently, two-thirds of the world's population resides in countries or areas where fertility rates are already below replacement level. Some developed countries, including Spain, will have to deal with a process of demographic decline, which brings with it numerous economic challenges and will compromise the financial sustainability of many welfares state policies.
  - The dependency ratio (the ratio of the number of individuals aged 65 and over to the number of working-age individuals aged 20-64) has increased in France, Italy, Germany and Spain. For example, in Italy, the dependency ratio increased from 14.3% in 1950 to 40.9% in 2023 and is expected to reach 74.4% in 2050; similarly, in Spain it was 12.8% in 1950 and has increased to 34.5% in 2023 and is expected to be 78.4% in 2050.
  - In Spain: the evolution of the fertility rate (1.16% in 2021 according to the report), is among the lowest in OECD countries for decades and would be below the replacement rate. The discrepancy between desired fertility and effective fertility is the largest in the countries around us and the main reason for this, according to the report, is the difficulty in reconciling work and family life due to high job instability (there is a correlation between low birth rate and high temporary employment, high unemployment, and low job flexibility with a high incidence of split working hours).
  - Some measures to boost the birth rate in Spain: all those that facilitate the reconciliation of work and family life, such as reducing the cost of mothers' participation in the labour market, through the financing of nurseries or direct aid to working mothers, or explicit restrictions on the use of the split working day.
  
  
• Generational inequality: According to the report the weight of the older population will condition electoral results and public policies and therefore it will be necessary to neutralize the electoral incentives that push people to forget young people and that could lead to an increase in inequality between generations. The report provides some recommendations such as the introduction of compulsory voting, the reduction of the minimum age for exercising the right to vote or the establishment of intergenerational considerations when allocating public spending.