Nordic countries top many global comparisons of wellbeing and equality. Raising kids while both parents work full time is relatively easy today; economic uncertainty and unemployment, which may cause people to postpone having and raising kids, have retreated during recent boom years.
Yet, fertility has been falling in all Nordic countries. At the lower end, the total fertility rate fell to 1.43 percent in Finland in 2018, leaving scientists and politicians scratching their heads. The fertility rate measures the average number of children a woman will have in her lifetime, and a fertility rate this low has a significant impact on the country’s future demographics.
Initially, there would be less need for daycare and schools, implying a cost-saving for taxpayers. But the shrinking working-age population together with an aging population would make the welfare state unsustainable in coming decades.
Finland and other Nordic countries are not alone in this issue. Fertility typically falls with economic development, and many developed countries have even fewer babies than Finland. Falling birth rates in high-income countries have been explained, in part, by higher education and more attractive careers for women, who continue to be expected to do the majority of childcare and housework. Having to choose between jobs and motherhood, many women will keep working or try to have their first baby at an older age, when they feel secure about their careers and personal finances.
Aging is old news in Japan, where fertility actually has improved a bit in recent years. Preschool is now free for children between three and five years old, and municipalities have created a lot more public daycare slots. The government has tried to ease female entry into labor markets, but the gender gap remains large in Japan, according to the World Economic Forum.
Germany has had encouraging results by introducing more generous parental-leave laws and rules to encourage fathers to take time off. Although there are still not enough nursery spots for all, the number of children under three enrolled in nurseries rose from 286,000 to 762,000 between 2006 and 2017.
A fertility rate of slightly over two per woman is necessary for a nation to maintain its population and labor force. The average in OECD countries is 1.7, and in the United States the rate is 1.8.
The U.S. fertility rate has generally been below replacement level since 1971, and there is no reason to expect a sudden reversal. A fall in unintended pregnancies can partly explain the drop, but there are also big societal reasons worldwide.
Israel has the highest fertility rate, at 3.1, among Organization for Economic Cooperation and Development (OECD) countries.
All European nations — and many others — fall short of being able to maintain working-age populations through domestic births alone.
South Korea probably leads the downward spiral. In 2018, its fertility rate dropped to 0.98, and 8.7 percent fewer babies were born in 2018 compared to 2017. Worried about a future demographic cliff, the South Korean government has discussed using vast sums of money to provide allowances to encourage young women to marry and have children. But South Korea and some other Asian countries typically have societal structures that make it difficult to have children if two parents both pursue ambitious careers.
Nordic countries have for many years worked hard to provide childcare services in order to promote working-life balance, which makes the decline in fertility a bigger mystery.
The consequences of shrinking fertility have long tails. According to the latest official projection, Finland’s population will start shrinking in less than two decades. The native population is shrinking already as deaths exceed births, and only immigration keeps the country’s population growing. By mid-century, Finland would have a very old population. Other Nordic countries have a slightly better situation, thanks to slightly higher fertility and immigration, but they face similar challenges.
Of course, some people think that a shrinking global population is exactly what an environmentally challenged Mother Earth needs. Climate-change anxiety has been offered as one reason for the declining willingness to have babies; others think that the welfare state has flaws, or that people simply do not want babies anymore. Perhaps the Nordic societies have shifted to embrace individuality over family-centricity. People are free to decide if they want to have babies or not.
Falling fertility rates will dampen economic growth and put pressure on existing pension systems; people may need to save more for their pensions, and the health care of the elderly will drain resources from other industries.
Positive net migration is one obvious solution to fill health care vacancies and keep pension systems afloat. But many Western economies face the same challenge simultaneously, and that may soon create a need to compete for a global talent pool. Switzerland, the U.S. and Canada are best at tapping the talent pool, according to the IMD World Talent Ranking, but many more demographically challenged economies are falling behind. For these nations, it might be a time to overhaul their immigration policies and marketing strategies.
Pasi Kuoppamäki is the chief economist of Danske Bank A/S Finland and recently was a visiting scholar at the Woodrow Wilson International Center in Washington. He previously worked at the Research Institute of Finnish Economy, the Finnish Ministry of Trade and Industry and the Bank of Finland.