This week I would like to discuss the choice between two kinds of policy response to population ageing. Population ageing has a number of dramatic social effects. The effect that I will focus on is the increasing old-age dependency ratio now being witnessed in more developed states – i.e. the ratio of elderly persons to younger persons. As this ratio increases, intergenerational transfer programs – i.e. programs that involve transfers from younger persons to the elderly, such as pensions and healthcare - become unsustainable.
I want to discuss a choice between two demographic policy responses to the increasing age-old dependency. A demographic policy seeks to reverse the old-age dependency ratio by increasing the proportion of younger persons in the population. A non-demographic policy, by contrast, seeks to adapt the unaltered age-structure of the population to the increasing old-age dependency ratio. Examples of non-demographic policies include policies aimed at increasing the number of workers in the economy by encouraging a larger proportion of younger persons to enter the labour market or by raising the retirement age.
We could call the two demographic policies I want to compare, replacement fertility and replacement migration. Replacement fertility policy aims to increase the birthrate in a society. Various measures might be taken with this aim in mind. For example, the state might provide cash allowances to families with many children. Alternatively, it might seek to diminish the so-called “child penalty” that women might face in seeking to combine work and family life. Key measures, here, include subsidising good quality childcare and obliging employers to guarantee women the right to return to their jobs after childbirth and maternity leave. Replacement migration aims to increase the working-age population by encouraging a higher number of (working-age) immigrants to enter the population. States can relax immigration restrictions – for example, by adjusting their points-based immigration rules (if they use such rules) or by loosening the constraints that employers face in hiring immigrants.
It would be mistaken to think that either replacement fertility or replacement migration can provide a full “solution” to the problem of a rising old-age dependency. Given the extent of the problem, developed states will need to pursue both types of policy. But there is a question to be asked about how exactly they should strike the balance between these two kinds of policy. Should states increase their working-age population as much as possible through one policy, and then supplement whatever deficit remains with the other policy? In other words, should they give priority to one policy over the other?
Before tackling this question, it is important to draw a distinction between two possible sources of the rising old-age dependency ratio in developed states. Both have to do, more specifically, with the declining birthrate. One source of the declining birthrate is that women are being denied rights that protect their equal opportunity to combine work and family life (let’s call this source of the declining birthrate – the non-fulfilment of gender-equality). The other source of the declining birthrate is the basket of casual factors that are independent of the non-fulfilment of gender-equality. For example, it might be the case that the birthrate is declining in part due to an evolution in preferences around child-bearing that is not influenced by non-fulfilment of rights.
Now the relevant deficit in the birthrate that I think states should seek to correct through replacement fertility or replacement migration is not the deficit that arises due to the non-fulfilment of gender equality. That deficit contains a portion of deficit that should be corrected through the fulfilment of gender equality. In other words, before pursuing policies that aim at increasing either the birthrate or migration, states should first fulfil gender equality. Notice that the latter policy – fulfilling gender equality – is not the same as aiming to increasing the birthrate, though an increase in the birthrate may well be an effect of fulfilling gender equality. There is a difference, for example, between labour market regulations that require employers to guarantee women a right to return to their jobs after childbirth and cash allowances for large families. The former aims at gender equality, the latter at increasing the birthrate. My point is that the state is required, as a preliminary matter, to put the former types of policies in place. The relevance birthrate deficit it should seek to correct is the one that would arise thereafter.
How, then, should state aim to correct the ex post deficit – i.e. the deficit in the birthrate that exists after the fulfilment of gender equality? In my view, there is a strong case for prioritising replacement migration. The main reason for this is that migrants have strong claims to inclusion. I find it difficult to see how a state can justify excluding a migrant who can contribute to its economy in favour of incentivising more of its “own” children. There are other relevant reasons to consider as well, including the presumably worse impact of replacement fertility on climate change. On the other side argument, however, is the familiar claim that replacement migration introduces greater ethnic diversity in a population and hence threatens to undermine social trust. This latter claim has been frequently discussed, and, as far as I can tell, the empirical evidence for it is inconclusive. My provisional conclusion, therefore, is that states should prioritise as follows: fulfil gender equality, pursue replacement migration, and, only thereafter, consider pursuing replacement fertility bearing in mind the climactic consequences of doing so.