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Monday, September 22, 2003

Four Phase Demographic Transition?

Returning to a suggestion from Mattias yesterday I've been doing a bit more investigating. I've located the full paper on the Four Phases of the Demographic Transition (and to think I only had it down to two stages) and it seems to be really to the point. Bo Malmberg seems to hang out in a quite interesting looking Institute for Future Studies in Stockholm.

In recent years, students of demography have focused mainly on gross population growth, while the problem of long-term changes in the age structure has attracted less attention. In consequence, the demographic transition model has been formulated in terms of (gross) death and birth rates. The analysis has focussed on the impact of the transition on the rate of population growth. According to this classic analysis, the rate of population growth is low as long as both birth and death rates are on a high level. When the death rate begins to fall, without any corresponding decline in the birth rate, the population starts to grow. Eventually, as the birth rate falls to the low levels typical of modern, industrialised societies, the rate of population growth is once again reduced. The impact of the demographic transition on population growth is important indeed. However, if we turn our attention away from general population growth towards age structure, we will soon observe that the impact of the demographic transition on age structure is equally strong as its impact on population growth. Furthermore, the effects on age structure are more extended in time. In the wake of the demographic transition, an age transition follows. This age transition consists of four distinctive phases, marked by the increase of one specific age group. First comes a child phase, then a young adult phase, thereafter a phase of population maturity, and finally a phase of ageing........

When fertility rates start to decline, this picture changes dramatically. Most countries that undergo a demographic transition do in fact not only experience a fall in the rate of fertility, but also a reduction in the total number of children born. This reduction creates a bulge in the age structure; a bulge built up by the cohorts that were born just before the absolute birth rate started to fall. The classic population pyramid gradually changes its appearance: the base gets narrower and the pyramid attains an increasingly convex shape.

In the traditional model, this fall in the birth rate is the last phase of the demographic transition. However, the age transition is far from completed at this stage. The reason is simple. A population that has developed a bulge in its age composition will be continuously transformed for as long as it takes for the bulge to pass through the entire age structure. The second stage in the age transition, the young adult phase, is attained when the bulge passes through the young adult ages. Later the bulge will pass through the Middle Ages, which marks the third phase, the phase of maturity. Still later, more than 60 years after the onset of the fertility decline, the bulge will enter the older age groups. All in all, a society that experiences an age transition goes through remarkably predictable demographic phases, from the initial challenge of high child dependency rates up to the closing phase of maturing and finally ageing..........

....the regular pattern of the age transition points to similarities in historical experience, across time and space. Regions in the world have experienced the demographic transition at different points in time, and with varying intensity, but once the demographic transition is under way, different regions tend to pass through the four phases of the age transition in roughly the same way............

The theoretical reason to expect that age structure matters to economic development is the existence of an economic life cycle that strongly influences the behaviour of people as they go from childhood to adulthood and old age. From this follows that a population might create very different economic conditions, depending on which age group that predominates population growth: children,adults or the old aged.

Most important, from a life cycle perspective, is the indisputable fact that an individual's productive capacity varies over the life cycle. Newborn humans are unable to survive without the support of older, more able-bodied custodians. Many years of care, education and training are needed before children have acquired the productive potential of an average adult. Similarly, when people grow older, their individual productive capacity tends to decrease, until it finally falls short of what they need for survival. Towards the end of life, we are often as helpless as we were as newborn babies. By contrast, most adults have a capacity to produce more than they need for their own immediate survival. They are not only able to support themselves, but they also typically act as providers. Moreover, in the course of the life cycle, people acquire experience, and they also tend to build up savings. In consequence, middle aged people are often richer in resources that younger adults. All in all, the youngest and the oldest members of a society constitute an economic burden, while working adults – and in particular the middle aged – produce the surplus on which economic growth and development depend.
Source: Bo Malmberg and Lena Sommestad: Four Phases in the Demographic Transition

Initial response. I really like the categorisation of modern societies into four 'ages' - from child via mature adult to old age - as this once more seems to me to put the question of history and evolution back into economic theory. It also provides a nice angle from which to begin to reconsider all the long-wave stuff which seems to have plagued much of business cycle studies. One of the early problems I would identify is that it doesn't extrapolate very far about the fourth, and 'final' phase. Clearly this ageing stage produces a demographic structure which is then, in theory, perpetuating, ad infinitum. This raises all kinds of interesting and difficult question. After senility, what next? Not that I have anything special to offer here, I'm not trying to get into futuristic speculation - I'll leave that to Kurtzweil - but the existence of the problem needs noting, at least as a horizon. Of course, if it were given to us to know what lay out there, just over the horizon.....

But then again, life in the age of science might become devoid of interest. Maybe it's the very uncertainty of the thing that motivates us.

On a more mundane level, I can't help feeling that the recent debates we've been having about credit and the expansion of monetary aggregates may have something to add to the Malmberg story. It may not surprise you to know that I think credit and growth expectations need to be introduced, among other things. Also technological change and human capital. But what I'm saying, I think, is that we seem to have here a very interesting platform, which can be enormously helpful in getting to grips with things we've previously found it difficult to get to grips with, and which may help to structure our thoughts, but we're not there yet. Einstein held that any good theory should be kept simple, but no more simple than the reality itself required.

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