Fertility clinics have set up shop in the city of Tijuana in northwestern Mexico, right on the border with the United States. They attract Americans who desperately want children and cannot afford the necessary procedure in the USA. Shuttle services take you from the nearby airports to the clinics.
While Mexican doctors help their northern neighbors give birth to children, Mexicans themselves are having fewer and fewer children. The birth rate in the country has fallen by half within 25 years. In 2024, according to government statistics, it was only 1.2 children per woman - this is Italian levels and less than the 1.6 children per woman in the USA. “I don’t have the words to describe this development,” says economist Jesús Fernández-Villaverde from the University of Pennsylvania in Philadelphia. Over the past five years, the birth rate in Mexico fell from 1.9 to 1.2.
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With this development, Mexico is not a demographic outlier. Mexico represents a new normal. Birth rates are falling globally at a pace that is rendering official population scenarios irrelevant. The ideas about a figurative “population explosion” and overpopulation, which have become so deeply ingrained in the consciousness, are outdated, even in Africa. Birth rates there are still high. But they are falling quickly and in many urban centers have fallen below the quota of 2.1 children per woman that maintains the population.
Economists Fernández-Villaverde and Patrick Norrick predict that humanity will probably fall below this conservation level this year for the first time in its history. Neither wars nor pandemics have so far been able to slow down the increase in the world population. But now there are forces at work that are causing birth rates in almost every country to shrink at a rate that few demographers had expected.
“Demography is the most underestimated socio-economic factor,” says Dirk Schumacher, chief economist at the state development bank KfW in Frankfurt. “You don’t notice the shrinkage right away.” Rich countries in the West are already experiencing demographic changes. In Germany, the workforce potential is falling by up to half a million people per year. Medium-sized entrepreneurs in particular lack successors. As the owners get older, their willingness to invest and willingness to take risks also decrease.
For many small companies, demographic change does not end with a change of ownership, but rather with closure. "The problem of succession does not arise in large corporations. It is the gigantic mass of smaller companies for which closure due to obsolescence is the only alternative," says Schumacher.
The consequences for society can be seen in many dimensions. “Most people imagine the decline in birth rates to be something like a diet: humanity has become a little too fat, is now losing ten kilograms and then continues to live a healthier life,” says Fernández-Villaverde. But that's not how it is. “It’s like losing calories every day until you starve.” Because contrary to what demographers had expected, there is little evidence that the population is stabilizing at a lower level. The macroeconomist considers the collapse in birth rates to be one of the greatest economic challenges of the coming decades. "This is not the path from eight billion to six billion. This is the path from eight billion to zero."
A crazy scenario for Bolivia
Fernández-Villaverde shows how powerful small differences in birth rates can be with a deliberately exaggerated calculation example: Bolivia could have a majority German-speaking population in 90 years. Around 150,000 Mennonites there speak Low German and have an estimated seven children per woman, while the rest of the population only has around 1.5. If these differences remain, Mennonites would be in the majority by 2116. “Fertility works like an interest rate,” says Fernández-Villaverde. Small differences compounded over generations.
The world population is still growing because women from baby boomers are reaching childbearing age and the elderly are living longer. The United Nations has calculated that the world population will reach its peak in the mid-2080s. Fernández-Villaverde assumes that the peak will come 30 years earlier.
Not all demographers see the development as dramatic. “People have wanted low birth rates for a long time,” says Axel Börsch-Supan, director of the Munich Research Institute for the Economics of Aging, which does not have a German name. The economist has been studying the global effects of demographic change, particularly for social insurance, for 40 years. In wealthy countries, advancing industrialization has already shown that fewer children are needed because their mortality rate has decreased, says Börsch-Supan. The baby boom after the Second World War compensated for the wartime deaths. This masked the long-term trend of declining numbers of children for a decade and a half, which continued thereafter. The birth control pill had only an insignificant influence.
“Society changes relatively little as a result of aging,” says Börsch-Supan. Labor shortages are noticeable without compensatory migration. “Older people are becoming more and can do more, they no longer look as old as older people used to.” Only politicians are having difficulty adapting the pension system to increasing life expectancy.
Is Thailand dying out?
The numbers evaluated by Jesús Fernández-Villaverde still seem like a structural break: Thailand recently only had 0.76 children per woman. If it stayed that way, the country would lose around 97 percent of its population within a hundred years. Colombia has around one child per woman, Iran around 1.35. In several emerging countries, birth rates are now lower than in Germany, France or the United States.
The development turns a classic narrative on its head. It has long been thought that rich societies and rich families have fewer children, while poor countries and poor families produce many children. The new reality is that the global decline in birth rates is concentrated primarily in low- and middle-income countries and among poorer and less educated women.
The consequence: many countries grow old before they become rich. They will then have to finance aging societies without having first built up the wealth, efficient institutions and tax bases of Europe or Japan.
The mood could change in France
For Fernández-Villaverde, Japan, which is actually in trouble, is almost a favorable case: rich, institutionally stable and comparatively socially homogeneous. Even there, aging is difficult to cope with. Countries like Mexico, Tunisia or Thailand would have to make the same adjustment with a fraction of per capita income.
France serves as a deterrent. Its state finances are unsustainable in the long term with an aging and highly polarized population, he says: “The country will explode, whether in 2028, 2035 or 2040.” Fernández-Villaverde compares the situation to a patient who smokes two packs of cigarettes a day, is overweight, drinks a lot and doesn't exercise. "Will you have a heart attack tomorrow? In a month? In 20 years? No doctor knows. But every doctor will tell you: Things can't go on like this."
The consequences of the drop in birth rates have long been visible, says Fernández-Villaverde. But they are rarely described as demographic conflicts. There are arguments in Germany about pensions, migration and housing policy. In the United States, a significant proportion of distribution conflicts occur between older owners of stocks and real estate and younger people without comparable assets. At the same time, falling population numbers allowed metropolises and attractive centers to continue to grow, while smaller towns bled dry.
Fewer people – is that negative?
It's not all bad. Fewer people means fewer emissions, less traffic and the chance to better educate children in small classes. These are arguments that have been relevant to specific groups of economists for decades. They are shaped by the report “Limits to Growth,” which a team of researchers prepared for the Club of Rome in 1972. The researchers made numerous incorrect predictions about resource scarcity and described population growth as a major problem of increasing pollution in the world.
“It is inevitable that on a finite planet the human population, like the population of all species, will eventually have to stabilize,” says Robert Costanza, a professor of ecological economics at University College London. It would be better for a good life in the world if this population settled at a lower level. In this way, for example, people in overpopulated regions can be prevented from being unable to avoid natural disasters. If the population stabilizes in time, this will be associated with a higher level of prosperity for individuals. How this stabilization can come about is unclear.
Where does the capital go?
You can also look at developments with a sober, objective investor's eye: "We see demographic developments as one of the four mega forces that are structurally changing the economy and capital markets," says Ann-Katrin Petersen, the chief investment strategist for the German-speaking region of the world's largest asset manager, Blackrock. The global labor supply continues to grow, but at an increasingly slow pace.
According to Blackrock calculations, the working population is only expected to grow by ten percent in the next two decades, instead of 27 percent as in the past 20 years. It is already shrinking in many major economies. In addition, the pressure on government finances could increase due to shrinking revenues. Capital will not automatically flow to countries with growing populations, warns Petersen. Without a good political framework, infrastructure and productivity, investors are not easy to attract.
“It’s not enough that the population is growing,” says the investment specialist. Demographics will have a noticeable impact on the global economy. “Over the past two decades, 0.3 percentage points of the average growth of 1.7 percent was explained by population growth,” says Petersen. “That is gradually disappearing, and without higher productivity there is more likely to be subdued growth.”
In Philadelphia, Fernández-Villaverde sees many of Europe's seemingly separate political struggles as variations on the same problem. "We're not talking about fertility. We're talking about its consequences." Pension policy, immigration, stock wealth, apartment rents: “This is demography by another name,” he says.
Why modernity makes children poor
The big mystery is: How could this happen? Two popular explanations are that men are producing fewer and less mobile sperm and that smartphones are killing personal contacts and dating. The argument against sperm poverty as a reason for the declining number of children is that religious families are having just as many children as before. The cell phone theory probably falls short. In Italy, for example, the birth rate in 1995, without cell phones, was 1.19. Last year it was 1.14.
The Internet could play a larger role or more attractive role models for women in societies with little equality. In macho societies, the birth rate could soon fall below that of northern European countries with more equality.
Economic motives characterize the second group of explanations: In many countries around the world, housing is more expensive than ever. This makes it more difficult for young people to move in together, get married or enter into long-term partnerships - and thus reduces the birth rate. A slightly more complicated argument probably has more force. Raising children is extremely time-consuming. As an economy grows and wages rise, parents' time becomes more expensive. This creates a strong incentive to have fewer children and work more. Furthermore, parents may be tempted to focus investments in education on a few children rather than many in order to increase their chances of a prosperous life.
Fernández-Villaverde's most radical explanation is therefore: It is not individual costs that make modern societies poor in children. It is modernity itself: education takes up the most fertile years, interruptions to raise children damage professional careers, and labor markets tear families apart. What has made societies more productive makes family formation more difficult.
Plea for child-friendly feminism
The economist still doesn't want to go back to the 19th century. He advocates organizing modern times in a more family-friendly way: more home offices, more flexible careers, smaller cities, denser social networks, more reliable care. His image for this: “Switch from fourth to third gear” – don’t stall the engine.
Fernández-Villaverde focuses primarily on affordable, family-friendly living space and flexible parental leave. High-rise buildings are impractical for families; Neighborhoods with yards and gardens in which children can play independently are better. Urban planning must be based less on architects and more on “how real people want to live.” It is equally important that parental leave does not harm your career. Germany's low birth rate is no evidence against such aid: "Without it we might be at 1.2 instead of 1.4."
