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Falling birth rates are an economic issue. Here’s how we can fix it

The CEO of Pipeline Equity says there are strategic levers we can pull to prevent economic calamity from unfolding as populations shrink. One is to increase women’s labor force participation.

Falling birth rates are an economic issue. Here’s how we can fix it
[Source photo: SolisImages/iStock]
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The alarm bells are sounding on the fertility front as countries around the world face historically low birth rates. In the United States, the number of annual births in 2020 sagged to 3,605,201, the weakest level since 1979. Overall, the population grew at the second-slowest rate since records began in 1790. Meanwhile, a handful of East Asian countries have seen their birth rates dip to at or below 1.0. And many middle-income countries such as Iran and Brazil now have birth rates below the replacement level of 2.1 children per woman

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Such declines will soon shock our economic infrastructure and lead to deteriorations in living standards. Unless we act now. Luckily, there are strategies to prevent economic calamity from unfolding as populations shrink. One is increasing women’s labor force participation to offset declining birth rates. This option is in everybody’s best interest because by boosting women’s labor force participation, we will also reap the collateral gains of a more inclusive economy. 

Falling birth rates: an economic problem with an economic solution

Falling birth rates throw economic systems into a state of disequilibrium. That’s why economists like myself worry about the rate of reproduction. For us, fertility is much more than a kinship issue. It’s an economic one.

Take, for instance, the difficulties countries will face with a smaller tax base as the working-age population falls. How will they afford the record $14.7 trillion of stimulus pumped into the economy in 2020 to offset the fallout from COVID-19? How will they fund assistance programs for healthcare and pensions? 

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Before the pandemic, the American Social Security program was already approaching a $13.2 trillion cash shortfall. In Japan, where the birth rate has dropped to its lowest level since 1899, tax hikes and social insurance premiums have eaten up nearly all recent income growth of the working-age population. 

There’s also the issue of plummeting investments in entrepreneurial innovation, as would-be investors externalize their doubts of future consumer demand and a heavier tax burden via bearish portfolio strategies. 

Perhaps most concerning, however, are the effects businesses will feel as their labor pools shrink. We are already grappling with an under-optimized labor pool because of gender inequity. It’s caused a $6.48 trillion global write-off in economic potential. We can’t afford to constrict the labor supply further. 

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When birth rates fall, economic instability rises. But a solution to offset the fertility drop doesn’t require stimulating population growth. 

Women’s labor force participation is key to offset population declines

Women’s labor force participation is key to counterbalance falling birth rates. In fact, increasing the economic potential of half the world’s population ushers in benefits for the entire economy, not only women. For every 10% increase in women’s share of employment, real wages increase by 8% for all workers—men, women, non-binary folx, and those who identify as other. Moreover, achieving gender parity in employment levels could increase the U.S. GDP by 5%, Japan’s GDP by 9%, and India’s GDP by 27%. 

Achieving parity in employment will require targeted structural changes. Pre-pandemic, approximately 80% of the world’s working-age men versus 52.6% of the world’s working-age women participated in the paid labor force. COVID-19 only aggravated this stubborn 27 point gender gap. 

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Last year, women’s labor force participation rate in the United States regressed to 1988 levels as 2.5 million women left the paid workforce. Canada, Italy, and Japan also recorded declines in women’s labor force participation during the pandemic. Collectively, these four countries widened their gender gaps in labor force participation by .6 percentage points in 2020 alone. 

Two keys to increasing women’s labor force participation

If increasing women’s labor force participation is the solution to cushion the fall of birth rates, then what is the solution to bring women into the paid workforce? The answer to this question is not singular (i.e. we can’t bank solely on care infrastructure to incentivize women into the labor market). I propose the following two pillars to support women’s participation in the labor force.  

Restructure workplaces so they work equitably for everyone 

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Our workplaces don’t work for everyone, and especially not for women. If they did work for everyone, we wouldn’t have a 24% gender pay gap. Nor would we have a 21% gender promotion gap between entry-level and managerial-level staff. If our workplaces worked for everyone, women wouldn’t face a 4% drop in wages after having children when men receive a 6% wage increase for having children. Women wouldn’t be “mommy-tracked” and perceived as 12.1 percentage points less committed to their jobs than non-mothers, compared to fathers who are perceived as five percentage points more committed to their jobs than non-fathers.

If our workplaces worked for everyone, LGBTQ+ employees wouldn’t have to hide their identities for fear of professional backlash. Women wouldn’t be given disproportionately critical, negative, and useless feedback. The average Latina mother wouldn’t lose $1.4 million over her lifetime to wage inequity. And Black breadwinner moms, who have the largest pay gap of any cohort of women (they earn 44 cents for every dollar breadwinner dads earn), wouldn’t be subject to a 42% promotion gap penalty, either. 

That’s why we cannot expect women to return to our pre-pandemic workplaces rife with inequity and bias. We need to restructure the employee lifecycle with equity at the core. That means employees of all genders, races, and ethnicities receive equitable performance evaluations, equitable rates of promotions, equitable growth opportunities, and equitable pay. Above all, we need to make sure mothers—the most productive employees in the workforce—aren’t punished for having children.

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In functional terms, that means companies should embed their talent operations with tools of the Fourth Industrial Revolution. Technology such as machine learning and cloud computing can weed out bias from all stages of the employee lifecycle and ensure every decision leads companies closer to equity.  

Focus on equitable upskilling

Just as we shouldn’t expect women to return to pre-pandemic (inequitable) workplaces, we also shouldn’t expect them to return to their pre-pandemic occupations. The reason is simple: digital acceleration will—if it hasn’t already—render those positions obsolete. In the early days of the pandemic, we catapulted five years forward in digital adoption, all in a span of eight weeks. 

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We are now sprinting into the future of work. The jobs at the highest risk of automation are the jobs where lower and middle-income women are overrepresented, whereas the jobs of the future are the jobs where women are underrepresented. 

As it stands, women hold less than 33% of all data and AI roles and represent less than 25% of the talent base in many emerging professions, including AI specialists, back-end developers, big data developers, data engineers, DevOps engineers, front end engineers, and full-stack developers. In cloud computing, women make up a meager 14.2% of the talent base.

We need to deploy targeted reskilling initiatives to ensure half the talent base, women, have access to the future of work. Doing so can not only spur a more inclusive recovery and equitable economy but also mitigate the looming issue of bias in AI. Companies can also use reskilling as a tool to attract and retain talent. In 2021, employees ranked “opportunities to learn new skills and technology” as the top factor that would help them thrive at work. 

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Ultimately, by removing the barriers to women’s full economic participation, we can turbocharge our economic recovery and offset the impact of declining fertility rates. We don’t necessarily need more babies when we can unleash the human potential we already have. 


Katica Roy is the CEO and founder of Pipeline Equity