One reason growth forecasts for rich nations are so grim is the common assumption that birth rates are falling. Fewer people will produce less income, and shrinking economies. Only the assumption of aging populations may be wrong, according to a recent report by Goldman Sachs that looks at key demographic trends for the 21st century.

    Since bottoming out in 2001, fertility rates in a number of developed economies have actually been on the rise. Among rich economies, the jump is most pronounced in places like the United Kingdom, France, Spain, and the U.S. Larger immigrant populations in these nations have something to do with this, as they tend to have more children. Yet the effect is only short term, as migrants adopt the fertility rates of their new homes within a generation or so.

    Goldman’s new analysis shows that another reason for the unexpected jump, and one that will play a bigger role in the future, is that women in rich countries have been having children later and later in life, something that traditional economic models don’t account for. Standard estimates of fertility are still tabulated assuming that most women are having children in their early 20s, rather than late 20s or even 30s and 40s, as has become more common in rich countries with lots of women in the workforce. “In parts of Europe (this method of calculation) has probably understated true fertility by about 15 to 20 percent,” notes Goldman Sachs economist Peter Berezin.

    Those are big numbers, with potentially very significant ramifications. For starters, it could be that some of the problems faced by aging nations with shrinking tax bases (like, for example, overblown health-care spending, crumbling infrastructure, and budget shortfalls) may not be quite as bad as once envisioned. In fact, there is some evidence to suggest that we may soon start seeing mini baby booms, which, in 20 years or so, could have a significant impact on the size of rich nations’ workforces, a shift that can’t come too soon for countries now struggling with unprecedented levels of national debt. Another bright spot – recent surveys by Eurobarometer show that European women between the ages of 25 and 39 want to have more children, if only it were easier to find a better work-life balance. Note to European leaders: stop worrying about the effects of immigration and start creating better-paid part-time work.

Newsweek, September 28, 2009