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Falling Birth Rates Threaten Long-term Economic Growth in Key Developed Cities

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Iryna Sychyk Bio

While developed urban areas generally have more favourable demographics than their respective countries, most metropolises across the developed regions have been experiencing declining birth rates. Continued move toward a world with fewer children will not only significantly reshape consumer markets but, given a positive association between birth rates and GDP growth, will also jeopardise the vitality of urban economies in the future.

Developed Cities with Lower Birth Rates Forecast to Register Slower Real GDP Growth by 2030

Source: Euromonitor International

Note: 1) The birth rate is the annual number of live births per 1,000 population; 2) The chart labels developed cities with the highest and lowest birth rates per each of five geographic regions; 3) Israeli cities, Tel Aviv and Jerusalem, are not shown in the chart due to their exceptionally high birth rates: 20 and 28 births per 1,000 people on average in 2010-2015, respectively.

Factors behind a decreasing birth rate

A myriad of social and economic factors have put natality on a downward path. Stronger participation of women in higher education and formal employment in the course of the 20th century negatively impacted fertility. Keeping a work-family balance in some countries is especially difficult, in light of long working hours (Japan), absence of paid family leave (the US), or lack of subsidised childcare (until recently in Germany).

Economic shocks also discourage childbearing. The recent financial crisis was especially hard on the Millennials as it struck right when most of this generation was entering the labour force. As such, in light of poor job security and lack of means to afford own home, it is understandable why a Millennial generation, although being at its reproductive prime, was not keen on family creation.

However, the demographers are puzzled at the fact that while the recovery from the financial crisis has come to most of the developed world, and was especially strong in world’s major cities, birthrates are not picking up. A highly likely reason behind a prolonged baby bust, which even the most pro-natalist policies will find hard to address, is the current population lifestyle choices and a general perception of the opportunity cost of children as too high. Millennials specifically, compared to the overall population, put more emphasis on careers and social status, while deprioritising marriage, home and family.

Dire consequences of falling natality

Low birth rates have economic consequences, none of which are positive in the long-term. First of all, the population faces the challenges of ageing. It is no coincidence that Japanese cities, as well as some Western European ones Frankfurt, Hamburg, Milan, Berlin, Rome have both the lowest birthrates and the highest shares of the elderly aged 65+ among key developed metropolises as of 2015.

Second, low natality spells out significant restructuring for consumer-focused businesses. While new opportunities will certainly arise in light of a growing elderly demographic, manufacturers of baby gear will find the new reality challenging. On top of this, continuously low birth rates will inevitably lead to a drop in total consumption in the future as overall population will begin to decrease.

The shrinkage of the working-age (15-64) population is the single biggest danger for the economichealth of cities. This age category is the main supplier of productive labour for businesses, which means the working-aged are also the tax payers and the care providers for the age-dependent.

Will immigration help cities?

Developed metropolises, as opposed to nations, have tended to perceive declining natality as less of an immediate threat. This is because generally thriving economies and abundant opportunities in cities have helped attract and retain the working-aged. Indeed, in Miami buoyant net migration, specifically from Latin America, is an important contributor to the city being among only three in North America along with Houston and Phoenix with a real GDP CAGR of above 2% by 2030, despite having one of the lowest birth rates among the continent’s major cities.

However, the case of Miami is more an exception, rather than a rule, in the urban developed world, as not all cities treat immigrants so openly. Brexit in the UK, Trump as President in the US and a growing right-wing mood across mainland Europe do not look promising for boosting net migration, which in light of declining birth rates, developed cities desperately need to safeguard their future economies. Yet, even with open borders, developed nations have been far from successfully integrating incoming migrants.

Declining birth rates, if not reversed, have prompted some analysts and public figures to even predict an inevitable demise of the Western civilisation. While this view has remained in the minority so far, above-mentioned struggles are not to be avoided, even though to be postponed for the leading cities in the developed world.

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