Harry Geels: Rapidly declining birth rates are causing economic headaches

Harry Geels: Rapidly declining birth rates are causing economic headaches

Outlook Technology Arbeidsmarkt
Harry Geels

This column was originally written in Dutch. This is an English translation.

By Harry Geels

Birth rates have fallen to record lows in most developed countries, posing economic challenges and investment dilemmas. Why are birth rates falling so fast? And what does that mean for the investor?

Last week, the Business Research Company released a report on the IVF industry, a market that has been growing at more than 10% per year in recent years and is expected to grow at an average rounded 10% per year through 2028. It was presented as an interesting growth market, an investment opportunity, but looking at the causes behind this growth, there is also a other side of the coin. The growth is a salient sign of the current times. The growth is a salient sign of the current times.

One of the reasons for the growth of the IVF industry is declining physical fertility. Let us first list five hypotheses and then see what economic impact they have and finally whether the investor can 'benefit' from them. In any case, it can be deduced from Figure 1 that fertility in the US is at a record low: only 1.6 children are born per woman. In the Netherlands we are around 1.5, Italy and Spain are even around 1.2.

Figure 1 – US fertility at record lows, as of end-2023

14052024 - Harry Geels - Figuur 1

Source: Charlie Bilello

Five hypotheses for declining birth rates

There are a complex of causes behind the declining fertility rates, some of which are quite shocking. Firstly, that we as humans are becoming physically less fertile, which is especially visible in men. The average number of sperm cells per ml of semen has decreased sharply in recent decades. It has more than halved in the last fifty years, with an acceleration since the turn of the millennium. Various hypotheses have been developed for this, such as environmental pollution, smoking and poorer eating habits.

The average decrease in testosterone in men is also interesting. Men are no longer the men their fathers were. Fertility and testosterone are partly related. The other four hypotheses for declining fertility rates are less physical in nature. For example, less value is attached to having children today than in the past. Because it is less economically necessary: ​​in the past, children were a later source of income for the parents (second hypothesis). And because we have come to consider other things more important (third hypothesis). See Figure 2.

Figure 2 – What we find important

14052024 - Harry Geels - Figuur 2
Source: The Wall Street Journal

A fourth hypothesis is that we have started to embrace looser and different forms of relationships in recent decades. Children do not always fit in here. The fifth hypothesis is more philosophical. In many animal species we see that reproduction decreases when environmental factors become less favorable. For example, various fish species spawn less when the water becomes polluted. Something similar could also apply to humans.

Economic headaches

Current birth rates in developed countries are too low to sustain natural population growth. This requires 2.1 children per family and we are now well below that. The fact that most developed countries are still showing population growth is due to immigration. It may not be a nice message for everyone, but we need immigration, at least to be able to continue to care for the relatively increasing group of elderly people and to maintain economic growth. And that growth is necessary to pay the enormous mountain of debt.

As argued earlier, government growth (in expenditure and number of civil servants) is increasing in most countries. To finance this, population and economic growth are required (both are correlated). There is a second headache for the labor market. There is already a shortage of young talents. Companies are fighting over them, which is reflected in the average salaries of the Gen Z generation, which are above those of other generations (see Figure 3). Gen Z also likes to job hop to get even higher salaries.

Figure 3 – US median income, by generation by age, x $1000

14052024 - Harry Geels - Figuur 3

Source: The Economist

What should the investor do then?

AI and robotics could be the long-awaited solution to the increasingly unfavorable shape of the population pyramid. There are still question marks. For example, although we have seen higher output per employee with the development of the PC and the Internet, so many jobs have been created in the technology sector that there has probably been no relief from the tightness in the labor market as a whole. Furthermore, a future with more AI and robotization means that there will be less human interaction in certain parts of the economy and more in others.

The best bet to prepare for the change in the workforce is therefore to invest in technology in the first instance. It is also possible to invest in the industry that increases our fertility, although this will be no more than a niche investment. The aforementioned report from Business Research Company contains a number of investment suggestions for this.

PS: Shortly after writing my column, the Wall Street Journal also ran a major story on this subject, entitled 'Suddenly There Aren't Enough Babies. The Whole World Is Alarmed', with an interesting graph showing the fertility of the world.

Figure 4 Fertility world

14052024 - Harry Geels - Figuur 4

Source: Wall Street Journal



This article contains a personal opinion from Harry Geels