Oran Hall | The economic effects of having fewer babies

Family sizes are getting smaller in Jamaica. This is because the total fertility rate – the average number of children Jamaican women can be expected to have over their lifetime – is declining. Jamaica is not singular in this regard; it is a worldwide problem.

According to a Jamaica Information Service report published on February 11, 2024, headlined ‘Fewer Babies Being Born in Jamaica’, the total fertility rate declined from 4.5 births in 1973-1975 to 1.9 births in 2021. Even more serious, the rate of 1.9 is below the replacement rate of 2.1, the average number of children a woman would need to have to keep the population constant.

Should the current trend continue, Jamaica’s population could eventually decline, considering that it is the interaction of fertility, migration and deaths which determines population growth.

The declining fertility rate can affect many things, including the dependency ratio, workforce size, savings and investment, the pension system, social security, and long-term economic growth.

As fewer children are born, the relative share of the youth in the population can be expected to get smaller, meaning an increase in the proportion of older people. This ageing of the population increases the chances of there being more people who are not able to support themselves. Fewer working-age individuals would thus be supporting a larger ageing population, that is, there would be a higher dependency ratio.

The decline of the younger population would likely lead to fewer people being available for work, leading to labour shortages, which could cause labour rates to increase thereby pushing up the overall cost of producing goods and services. Among the consequences of this would be increases in the general level of prices, that is, inflation. Beyond that, this may also stymie economic growth.

Savings and investments could benefit. A family not saddled with the cost of raising and supporting children should be able to save more, including saving for emergencies and retirement. This could potentially increase the savings rate of the country and the pool of funds available to be invested in the local economy.

An ageing population may prefer more conservative investment instruments, such as bonds, to limit its risk of loss of capital and to generate more current income to meet ongoing needs for cash. If the demand for longer-term interest-bearing instruments is sufficiently robust, this could moderate interest rates. Nonetheless, a greater pool of funds for investment could give a boost to the financial markets.

At the same time, a smaller population would mean fewer consumers, which would mean lower demand for goods and services. This could pose challenges for businesses and make it necessary, over time, to find creative ways to attract attention to their goods and services, lest their profits remain tame and make investing in stocks less attractive if they are listed on the stock exchange.

There could be a strain on the government and social security. Fewer workers would likely lead to lower tax revenues from, for example, income and consumption taxes, which would limit the resources of government for social spending. At the same time, a larger elderly population would require more government spending on healthcare and pensions and other benefits. One solution government could opt for is to increase the retirement age.

With fewer children, seniors could find themselves having less family support. They would have to take more responsibility for their well-being and welfare and would likely have to find creative ways to build social networks to enable them to address issues like loneliness. In terms of their care, the need could arise for them to turn to professional elder care facilities, with the attendant costs. This could lead to a greater focus on insurance plans to address such needs.

While we focus on the likely effects of a declining fertility rate, there is an ongoing matter that has the potential to worsen the situation: migration. Younger people, many of child-bearing age, well-educated and highly skilled, are prominent in the ranks of those opting to emigrate.

This has put a brake on population growth. While the remittances they send to family help to provide for their welfare, contribute to savings and investments, and the demand for goods and services, for example, they are not able to fill all the gaps related to them, choosing to live abroad.

The efforts of the government of Jamaica over the last five decades or so to contain the fertility rate has worked well – perhaps too well. It must now find attractive ways to reverse the process, in the interest of the ageing population, the rest of the population, and the economy.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial-planning advice and counsel.finviser.jm@gmail.com