Ifo Viewpoint No. 79: Shrinking Champion

Hans-Werner Sinn
Munich, 08 November 2006

The German people is shrinking faster than others and does not know it. The rate of shrinkage of the population resident in Germany amounted to 0.18% per annum in the period 2000 – 2005, which was the highest value of all Western countries. If account is taken of migration, the decline turns into small growth of 0.09% p.a., but this is also the lowest figure of all Western countries.

The cause is not a high death rate, but an extremely low birth-rate. At only 8.5 newly born babies per 1000 inhabitants and year, Germany is at the bottom of the OECD birth statistics. There is no other Western people with fewer births relative to its size than Germany.

The Germans are not aware of this because they misinterpret the birth statistics. They are blinded by the so-called fertility rates. Indeed, in 2004 a woman averaged only 1.37 children, 0.71 fewer than the 2.08 that are necessary to maintain the population. In Italy and Spain, however, the average was even lower, at 1.33 and 1.32, respectively, and Japan only averages 1.29 children.

The fertility rate does not measure the number of children born every year, but only the number of children each woman has. In Germany, the population not only shrinks so fast because its women are not prolific enough, but also because there are only few women of childbearing age. After all, in this country, the fertility rate started to decline in the early 1970s and thus earlier than elsewhere. The Italian rate fell about seven years later and the Spanish rate another four years later. German babyboomers who were born in the mid-1960s, are above forty already, and the group of thirty-year-olds, that was born in the mid-1970s, will soon be only half as big. The combination of a very low share of women of childbearing age and a very low birth rate per woman is unique in the world. It explains the German championship in terms of population shrinkage.

Of course, this picture is a snapshot, similar to an economy’s growth rate that also shows only the current pace of the year under consideration. In several years other people may shrink faster than Germany’s. Italy and Spain belong to the group of those countries that will assume Germany’s inglorious record. At present, however, Germans do shrink faster than the others.

We can only guess why the decline started in Germany first. There are many possible explanations. One obvious explanation is that the wide-spread use of birth-control pills occurred earlier than else-where. After all, it was Germany’s Schering AG that invented these pills. Another explanation is the 1968 revolution that meant a renunciation of the traditional values of society with respect to the role of women and family. Although this revolution also took place in France, the French are doing a lot for families with young children diminishing the size of this effect.

A third explanation is historical: Demoralised by the lost wars, Germans lost faith in themselves and their future. Given that the defeated Italians and Japanese as well as the formerly fascist Spain also belong to the group with the lowest birth-rates, a certain effect may be suspected.

A fourth explanation is pension insurance. This insurance socialised the fruits of the investment in one’s own children because it distributes the contributions that these children, as grown-ups, make available for the provision of old people, to all old people, i.e. also to the parents of other children and to the childless. As Germany invented the pension insurance and introduced it much earlier than elsewhere, it is no wonder that people here earlier than elsewhere have learned that one fares better if other people’s children provide for one’s old age than to raise children oneself.

The road into childlessness is temporarily quite pleasant for a people. Women’s capability is used for the production of market incomes, and the standard of living rises by a multiple. With two incomes and no children, per-capita income is five times as high as with one income and three children. Investment in the future of society by educating children is replaced by current consumption. To this is added the satisfaction of those women who feel liberated from the yoke of motherhood and understand the change into paid work as self-realisation. Let the big party begin.

Of course, a people can afford this kind of party only once. Afterwards the bill must be paid, and a hangover is certain. Pension crisis, old-age poverty, and economic stagnation are the inevitable consequences. The new German model of society has many proponents, but is not sustainable. The evolution and selection of societal models is in full swing worldwide. But it is evident even today that the German model will die with the Germans. National sensitivities and ideological predispositions cannot alter the fact.

Hans-Werner Sinn
Professor of Economics and Finance, University of Munich
President of the Ifo Institute

Published as “Einmalige Party", Wirtschaftswoche, No. 35, August 28, 2006, p. 138.