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

Alarm bells are ringing 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 fell to 3,605,201, the lowest level since 1979. Overall, the 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 drop to 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..

Such declines will soon shock our economic infrastructure and lead to a deterioration in living standards. Unless we act now. Fortunately, there are strategies to prevent economic disasters from occurring as populations decline. One is to increase women’s participation in the labor market to compensate for declining birth rates. This option is in the best interest of all, because by increasing the participation of women in the labor market, 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 plunge economic systems into a state of imbalance. That’s why economists like me worry about the reproduction rate. For us, fertility is more than a question of parentage. It is an economic question.

Take, for example, the difficulties countries will face a shrinking tax base as the working-age population shrinks. How will they afford the record $ 14.7 trillion stimulus injected into the economy in 2020 to offset the fallout from COVID-19? How will they finance health and pension assistance programs?

Before the pandemic, the U.S. social security program was already approaching $ 13.2 trillion lack of liquidity. In Japan, where the birth rate has fallen at its lowest since 1899, tax hikes and social insurance premiums swallowed up almost all recent income growth of the working-age population.

There is also the issue of falling investment in entrepreneurial innovation, as potential investors outsource their doubts about 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 due to gender inequality. This caused $ 6.48 trillion overall amortization of economic potential. We cannot afford to restrict the supply of labor further.

When birth rates fall, economic instability increases. But a solution to compensating for the decline in fertility does not require stimulating population growth.

Participation of women in the labor market is essential to compensate for population decline

The participation of women in the labor market is essential to counteract declining birth rates. In fact, increasing the economic potential of half the world’s population benefits the entire economy, not just women. For every 10% increase in the share of women in employment, real wages increase by 8% for all workers – men, women, non-binary folx and those who identify as others. In addition, achieving gender parity in employment levels could increase US GDP 5%, Japan GDP 9%, and India GDP 27%.

Achieving employment parity will require targeted structural changes. Pre-pandemic, around 80% of working-age men globally versus 52.6% of working-age women globally were in the paid labor force. COVID-19 has only worsened this stubborn 27-point gender gap.

Last year, the female participation rate in the United States declined to 1988 levels while 2.5 million women have left the paid workforce. Canada, Italy and Japan also recorded declines in the participation of women in the labor market during the pandemic. Collectively, these four countries widened their gender gaps in labor force participation by 0.6 percentage points in 2020 alone.

Two keys to increasing women’s participation in the labor market

If increasing the participation of women in the labor market is the solution to cushion the fall in birth rates, then what is the solution to integrate women into the paid workforce? The answer to this question is not unique (i.e. we cannot rely solely on healthcare infrastructures encourage women to enter the labor market). I propose the following two pillars to support the participation of women in the labor market.

Restructure workplaces so that they work fairly for everyone

Our workplaces don’t work for everyone, especially not for women. If they worked for everyone, we wouldn’t have 24% gender pay gap. We wouldn’t have 21% either. gender promotion gap between entry-level and managerial staff. If our workplaces worked for everyone, women wouldn’t face a 4% rate pay cut after having children while men receive a 6% pay rise for having children. Women would not be “followed by their mothers” and perceived as 12.1 percentage points less engaged in their work than non-mothers, compared to fathers who are perceived to be five percentage points more engaged in their work than non-fathers.

If our workplaces worked for everyone, LGBTQ + employees wouldn’t have to hide their identities for fear of professional reactions. Women will not receive disproportionately critical, negative and unnecessary comments. The average Latina mom wouldn’t lose $ 1.4 million in her lifetime because of wage inequality. And black mothers, who have the biggest pay gap of any cohort of women (they earn 44 cents for every dollar earned by fathers, breadwinners), would not be subject to a 42% tax promotion gap penalty, either.

This is why we cannot expect women to return to our pre-pandemic workplaces plagued by inequity and prejudice. We need to restructure the employee lifecycle with fairness at heart. This means that employees of all genders, races and ethnicities receive fair performance reviews, fair promotion rates, fair growth opportunities and fair compensation. Above all, we must ensure that mothers, the most productive employees in the workforce — not punished for having children.

In functional terms, this means companies need to integrate their talent operations with tools from the Fourth Industrial Revolution. Technologies like machine learning and cloud computing can eliminate bias of all stages of the employee lifecycle and ensuring that every decision brings companies closer to fairness.

Focus on equitable skills upgrading

Just as we shouldn’t expect women to return to pre-pandemic (inequitable) workplaces, neither should we expect them to return to their pre-pandemic occupations. The reason is simple: digital acceleration will, if it hasn’t already, make these positions obsolete. At the start of the pandemic, we catapulted five years forward in digital adoption, all in eight weeks.

We are now rushing into the future of work. The most risky professions of automation are jobs where low- and middle-income women are over-represented, while jobs of the future are jobs where women are under-represented.

Currently, women occupy 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 represent only 14.2% of the talent base.

We need to deploy targeted retraining initiatives to ensure that half of the talent base, women, have access to the future of work. This can not only drive a more inclusive recovery and a fair economy, but also alleviate the looming problem of bias in AI.. Companies can also use recycling as a tool to attract and retain talent. In 2021, employees ranked ‘opportunities to learn new skills and technologies’ as the main driver it would help them thrive at work.

Ultimately, by removing barriers to women’s full economic participation, we can boost 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.


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