Bye, bye, babies

The global birth rate is collapsing, causing some big industries to take a hit

This original image was created with the assistance of DALL-E.

Is a world without children in our future?

Just this week, the Federal Institute for Population Research (BiB) and Stockholm University announced preliminary figures showing that Germany’s birth rate fell to 1.36 in the last quarter of 2023, the lowest level in more than a decade. For reference, a rate of 2.1 is needed to maintain the population.

The news from Germany follows similar statistics reported from South Korea and Japan earlier this year—both countries’ birth rates are also at historic lows. Based on government estimates, the United States birth rate for 2023 was 1.84, with a slick uptick from 2022, but still shy of the rate needed to maintain growth without immigration.

According to the United Nations Department of Economic and Social Affairs (UN DESA), two-thirds of the global population lives in areas where the birth rate is below the replacement rate. Countries across Europe will see the most pronounced population decreases, up to 20% or more, by 2050. However, places like South Korea, China, and Japan are experiencing population decline, too. The combined population losses in Europe and Asia could be more than a quarter of a billion people over the next 25 years.

In an interview with FOCUS online, family sociologist Martin Bujard, research director at the Federal Institute for Population Research in Wiesbaden, notes: “The whole of Europe has a problem with low birth rates, which in the long term causes major problems for social systems and the shortage of skilled workers. We see that now and it is also permanent if a third of a future generation is simply missing.”

In short, the decline in birth rates is changing everything. Entire industries will be disrupted, but they might not be the ones you think or in the ways you expect.

What’s causing this

No expert can point out a single factor explaining the birth rate drop. However, it’s a long-term trend that must consider various factors, including shifting social, economic, and gender norms. It’s closely tied to national economic development and educational attainment, too.

According to Pew Charitable Trusts, “Among the cultural shifts affecting fertility rates, one of the more prominent changes has been Americans delaying or forgoing marriage.” To put it bluntly, women who marry later in life or forego marriage altogether have fewer kids. Birth rates for single women are less than half that of those who are married.

There’s also been a precipitous drop in teen pregnancies thanks, in part, to birth control. Teen birth rates have fallen by more than half from a decade ago, pushing down overall fertility rates. As CNN reported, “Birth rates increased among women ages 25 to 44, while the teen birth rate reached a record low.”

According to UCLA professors Jennie Brand and Dwight Davis, even education plays a role. “In women, educational attainment (particularly college attendance) is also closely related to declines in fertility.”

Of course, some of this trend is driven by personal choice, too. According to BBC reporting, a growing cohort of people are simply choosing to live ‘child-free’ lives.

What can be done

Despite many national attempts worldwide, no solution has fully reversed the decline in the birth rate. No nation has been successful in raising the birth rate to a replacement rate or above.

France, long considered a success story, has comprehensive policies in place, including generous parental leave and national subsidies. Sweden has similar parental leave policies and universal childcare, which promote gender equality. And Singapore has been working to reduce the financial burden of children by supporting a work-life balance.

Nagi, a small town in Japan, has bucked the global trend. Nearly half of the households there have three or more children. The town offers free healthcare for children through high school and financial incentives for each child born. It has also added other policies to encourage families to have children, such as subsidized child care, education costs, and infertility treatments. The fertility rate in Nagi more than doubled from 1.4 before the reforms to 2.95 after.

Despite Nagi’s success, Japan has failed to recreate its model nationwide. This has forced the country to reckon with an economy that has fewer children and more older adults now and for the foreseeable future.

The impact on business and the economy

Much has been said about how demographic change will reshape labor markets and, of course, the challenge of the dependency ratio on social welfare programs. We’ve covered those here at #NewRules in articles about Italy’s demographic predicament and the balancing act facing U.S. policymakers. However, less has been shared about how the organizations that cater to children will be impacted in the coming years.

Take Japan, for example, where, in 2011, sales of adult incontinence products outpaced those of baby diapers. The trend continues today and reflects just how few children are being born there.

The decline in births worldwide is so sharp that it prompted the global retailer Toys R Us to ring the alarm bell for its investors, too: “The decrease of birthrates in countries where we operate could negatively affect our business. Most of our end-customers are newborns and children, and, as a result, our revenue is dependent on the birthrates in countries where we operate. A continued and significant decline in the number of newborns and children in these countries could have a material adverse effect on our operating results.”

But it’s not just companies that produce products for children that are at risk. Experts predict that declining birth rates will have a cascading effect on other industries. Here are seven to watch in the coming years:

1. Childcare and Education: Lower birth rates directly reduce the demand for childcare services and preschools and potentially lead to a decrease in primary and secondary education enrollment over time.

2. Healthcare and Pediatric Services: A lower birth rate can result in reduced demand for pediatric healthcare services, maternity care, and related healthcare services.

3. Real Estate and Housing: In the long term, declining birth rates can lead to changes in housing demand, with potential shifts towards smaller homes or decreased demand in family-oriented neighborhoods.

4. Automotive: Families often purchase larger vehicles to accommodate children. A decline in birth rates could shift demand towards smaller vehicles or change the automotive market dynamics altogether.

5. Consumer Goods: Broadly, industries related to consumer goods for families and children may experience a downturn in demand. This includes everything from baby products to food and beverage products targeted at children.

6. Entertainment and Media: Content targeted specifically at children or families, including movies, TV shows, and digital media, might see a decline in their audience base.

7. Financial Services and Insurance: Demand for products tailored to families, such as life insurance and college savings plans, may decrease.

In an interview with CNBC, Jason Dorsey, president of the Center for Generational Kinetics, predicted that declining birth rates “are going to have a profound effect on many businesses—some in the immediate term and others 5 to 10 years out.” He noted, “Declining birth rates hit the obvious group of businesses first: diaper makers, toy makers, kids meals at restaurants, car seat manufacturers and the like.”

It is safe to assume that this trend won’t stop here. Demand for adult products will decline in the coming years, too, as smaller, younger populations transition into adulthood.