Journalof Economic Perspectives—Volume 17,Number 4—Fall 2003—Pages 167– 190

TheDemographic Transition: Three Centuriesof Fundamental Change

Ronald Lee

eforethe start of the demographic transition, lifewas short, birthswere many, growthwas slowand thepopulation was young. Duringthe transi- Btion, Žrstmortality and then fertilitydeclined, causing population growth ratesŽ rstto accelerate and then toslow again, movingtoward low fertility, long life and an oldpopulation. Thetransition began around 1800with declining mortality inEurope. It has now spread toall parts ofthe world and isprojected to be completedby 2100. This globaldemographic transition has broughtmomentous changes, reshapingthe economic and demographiclife cycles of individuals and restructuringpopulations. Since1800, global population sizehas alreadyincreased bya factorof six and by2100 will have risenby afactorof ten. Therewill then be 50times as many elderly,but onlyŽ vetimes as many children;thus, theratio of eldersto children will have risenby a factorof ten. Thelength of life, which has alreadymore than doubled, willhave tripled,while births per woman willhave dropped fromsix to two. In 1800,women spent about 70percent of their adult yearsbearing and rearingyoung children,but that fractionhas decreasedin many parts ofthe world to only about 14percent, due to lowerfertility and longerlife. 1 Thesechanges aresketched in Table 1. Thesetrends raise many questions and controversies.Did population growso

1 With e(0) 5 27.5, Iassumethat womencared for young children from ages 20 to 50, sothat the fraction of adult lifespent givingcare is deŽ ned in terms of lifetable functions as ( T(20) – T(50))/T20 5 71percent, where T(x)isthe survivalweighted number of personyears lived above age x. With e(0) 5 77.5, Iassumewomen care for young children from ages 25 to 33, sothat the fraction ofadult lifespent givingcare is ( T(25) – T(33))/T(20) 5 14 percent. y RonaldLee isProfessorof Demography andEconomics, University of California,Berkeley, California.His e-mail addressis ^[email protected] &. 168Journal of Economic Perspectives

Table 1 GlobalPopulation Trends Over the Transition: Estimates, Guesstimates and Forecasts,1700 –2100

LifeExpectancy TotalFertility Rate Pop Size PopGrowth Rate Pop , 15 Pop . 65 (Yearsat Birth) (Birthsper Woman) (Billions) (%/Year) (%ofTotal Pop) (%ofTotal Pop)

1700 27 6.0 .68 0.50 36 4 1800 27 6.0 .98 0.51 36 4 1900 30 5.2 1.65 0.56 35 4 1950 47 5.0 2.52 1.80 34 5 2000 65 2.7 6.07 1.22 30 7 2050 74 2.0 8.92 0.33 20 16 2100 81 2.0 9.46 0.04 18 21

Source: Populationnumbers and growthrates for1700 are taken fromBiraben (1980) and for1800 from United Nations (1999). The Ž guresfor TFR and e(0) arebest guesses by the author, consistent with the populationgrowth rate based on Coale-Demeny (1983) ModelSouth Female stable populations with an averageage of childbearing of 31and shouldnot betreated as data. The Ž gureson agedistribution are likewisebased on these model stable populations. Data for1900 are from Chamie (2001), for1950 –2050 fromUnited Nations (2003) and for2100 from United Nations (2000). slowlybefore 1800 because itwas keptin equilibrium by Malthusian forces?Did mortalitybegin to decline because ofmedicalprogress, because ofrising per capita incomeor for some other reason? Did fertility begin to fall because ofimproved contraceptivetechnology and familyplanning programs,or were couples optimiz- ingtheir fertility all along and reducedit in response to changing economic incentives?Are we approaching abiologicallimit to life expectancy, or can we expectto see continuing oreven accelerating longevity gains? Some predictions suggestthat globalfertility is projected to fall to 2.0 children per woman, but in Europeit has beenonly 1.4 for some time, and ineastAsia itis 1.8; whyshould we expectfertility decline to stop at 2.0?Low fertility and increasinglongevity cause a dramaticchange inthepopulation agedistribution, with a ten-foldincrease in the ratioof elderlyto children.Will the societal costs ofthe elderly be catastrophic? In thepast, therehas beengreat concern that rapidpopulation growthin third-world countrieswould prevent economic development, but mosteconomists have down- playedthese fears. Similarly, environmentalists fear that worldpopulation isalready abovethe carrying capacity ofthe biosphere, while most economists are compla- centabout theprojected 50 percent increase in population overthis century.In this paper, Iwilldescribe these demographic changes ingreaterdetail, and Iwillalso touch on thesequestions and controversies.

Before the Demographic Transition

Accordingto a famous essay byThomas Malthus, Ž rstpublished in 1798, slow population growthwas no accident. Population was heldin equilibrium with the RonaldLee 169

slowlygrowing economy. Fasterpopulation growthwould depress wages, causing mortalityto risedue to famine, war or disease —inshort, misery.Malthus calledthis mortalityresponse the “positive” check. Depressedwages would also cause post- ponementof marriage, resulting in prostitution and othervices, including contra- ception; this hecalled the “preventive” check. Sincepopulation could potentially growmore rapidly than theeconomy, itwas always heldin check by miseryand vice, which weretherefore the inevitable human lot.Economic progress could helponly temporarilysince population could soon growto its new equilibrium level, where miseryand vicewould again hold itin check. Only through moralrestraint —that is, thechaste postponement ofmarriage —did Malthus believethat humanity might avoidthis fate,and hethought this an unlikelyoutcome. Forpreindustrial Europe at least,Malthus seemsto have beenright. Popula- tionwas heldweakly in equilibrium by the positive and preventivechecks. When weather,disease or political disturbance knockedpopulation out ofequilibrium, realwages and rentsreacted strongly (Lee, 1987, 1997; Lee and Anderson, 2002), and thechecks broughtpopulation slowlyback toequilibrium. In westernEurope in the centuries before 1800, marriage required the re- sources toestablishand maintain aseparatehousehold, so ageat Ž rstmarriage for womenwas late,averaging around 25years,and asubstantial share ofwomen never married(Flinn, 1981,p. 84;Livi-Bacci, 2000, pp. 99 –107).Although fertilitywas high withinmarriage, the total fertility rate (TFR) was moderateoverall at fourto Ž vebirths per woman (Livi-Bacci,2000, p. 136).Mortality was also moderatelyhigh, withlife expectancy at birthbetween 25 and 35years (Flinn, 1981,pp. 92 –101; Livi-Bacci,2000, pp. 61 –90),2 but this was heavilyin  uenced byhigh mortalityin infancy and childhood. Population growthrates were generally low, averaging 0.3percent/ yearbefore 1700 in western Europe, but sometimesrising above 1percentin the nineteenth century. 3 In Canada and theUnited States, marriage was much earlierbecause land was abundant, and population at Ž rstgrew rapidly, but then deceleratedin the nineteenth century. Outsideof Europeand itsoffshoots, fertilityand mortalitywere higher in the pretransitionalperiod, and change infertility and mortalitycame later. Data on mortalityor fertility are only occasionally availablefor third-world countries before WorldWar II(Preston, 1980).In India inthe late nineteenth century, life expec- tancy averagedin thelow 20s and was highlyvariable, while fertility was sixor seven

2 TheTotal FertilityRate isthe sumacross all ages of the birthrates at eachage and, therefore,measures the total numberof birthsa survivingwoman would have overher reproductive life, either actually for agenerationof womenor hypotheticallyfor a givencalendar year, whichis the morecommon usage. Lifeexpectancy at birthis the averageage at death foran actual generationor hypothetically the average ageat death impliedby the age-speci Ž cdeath rates ina givencalendar year, whichis the morecommon usage. 3 Apopulationwith aTotal FertilityRate of4.5 and lifeexpectancy at birthof 30growsat 0.5 percent peryear (based on Coale-Demeny, 1983, stable population models with ameanage of childbearingof 31). 170Journal of Economic Perspectives

birthsper woman (Bhat, 1989).In Taiwan, thepicture was similararound 1900. Widespreaddata on fertilityfor the decades afterWorld War IIcon Ž rmthat total fertilityrates in the third world were typically six or higher. However, recent work suggeststhat thedemographic situation inChina mayhave beencloser to the Europeanexperience than previouslythought (Leeand Feng,1999). Although pretransitionalfertility was typicallyhigh inthird-worldcountries, its levelswere far below the hypothetical biological upper limit for a population (as opposed toan individual),which isaround 15to 17 birthsper woman (Bongaarts, 1978).The contraceptive effects of prolonged breastfeeding, often combined with taboos onsexwhile breastfeeding, led to long birth intervals and reducedfertility. Abortionwas also important, and sometimesthe practice of coitus interruptushad an importanteffect. In somesettings, marriage patterns also limitedfertility, although not as stronglyas inwestern Europe. Attheaggregate level, population growththroughout theregions of theworld was slowover the past millennium,but therewas apuzzlingsimilarity in longswings about thegrowth path, such as stagnation inthe fourteenth and seventeenth centuriesand morerapid growth in the Ž fteenthand eighteenthcenturies. While exchangesof disease through explorationand trademay have playedsome role, globalclimatic change was probablythe main drivingforce (Galloway, 1986).

Mortality Declines, Fertility Declines andPopulation Growth

Theclassic demographictransition starts withmortality decline, followed after atimeby reduced fertility, 4 leadingto an intervalof Ž rstincreased and then decreasedpopulation growthand, Ž nally,population aging. Iwillconsider these major stagesin turn.

MortalityDeclines Thebeginning of the world ’sdemographictransition occurred in northwest Europe,where mortality began aseculardecline around 1800.In many low-income countriesof the world, the decline in mortalitybegan intheearly twentieth century and then accelerateddramatically after World War II. The Ž rststage of mortality decline is due to reductions in contagious and infectiousdiseases that arespread byair or water. Starting with the development of thesmallpox vaccine in thelate eighteenth century, preventive medicine played a rolein mortality decline in Europe. However, public health measuresplayed an importantrole from the late nineteenth century, and somequarantine measures mayhave beeneffective in earlier centuries. Improved personal hygiene also helpedas incomerose and as thegerm theory of disease became more widely

4 Thereare cases in which fertility declined Ž rst, notablythe United States and France. TheDemographic Transition: Three Centuries of Fundamental Change 171

known and accepted. Anothermajor factorin the early phases ofgrowing life expectancyis improvements in nutrition. Famine mortality was reducedby im- provementsin storage and transportation that permittedintegration of regional and internationalfood markets,smoothing across localvariations in agricultural output. Secularincreases in incomes led to improved nutrition in childhood and throughout life.Better-nourished populations withstronger organ systemswere betterable to resist disease. Life expectancy is still positively associated withheight intheindustrial country populations, plausiblyre  ectingchildhood health condi- tions (Fogel,1994; Barker, 1992). Thehigh-income countries of the world have largelyattained thepotential mortalityreductions due to reductions in infectious disease and increasesin nutrition.In recentdecades, thecontinuing reductionin mortality is due to reductionsin chronic and degenerativediseases, notably heartdisease and cancer (Riley,2001). In thelater part ofthe century, publicly organized and funded biomedicalresearch has playedan increasinglyimportant part, and thehuman genomeproject and stemcell research promise future gains. Many low-incomepopulations didnot beginthe mortality transition until some timein the twentieth century. However, they then madegains inlife expectancy quiterapidly by historical standards. In India, lifeexpectancy rose from around 24yearsin 1920to 62 yearstoday, againof .48 years per calendar yearover 80 years. In China, lifeexpectancy rose from 41 in 1950 –1955to 70 in1995 –1999,a gainof .65years per year over 45 years. Such rapidrates of increase in low-income countrieswill surely taper off as mortalitylevels approach those ofthe global leaders. Thereis a rangeof views on wheremortality is headed duringthe coming decades. On theoptimistic side, Oeppen and Vaupel(2002) offer a remarkable graph that plotsthe highest national femalelife expectancy attained foreach calendar yearfrom 1840 to 2000. The points fallclose to astraightline, starting at 45years in Sweden and endingat 85years in Japan, witha slopeof 2.4 years per decade. If weboldly extend the line forward in time, it reaches 97.5 years by mid-centuryand 109years by 2100. Lessoptimistic projections are based on extrapolationof trends in age-speci Ž c death ratesover the past 50or 100years. This approach impliesmore modest gains forthe high-income nations ofthe world, with average life expectancy approaching 90yearsby the end ofthe twenty- Ž rstcentury (Lee and Carter,1992; Tuljapurkar, Liand Boe,2000). Oddly, someof the most pessimistic estimates of the future improvement in lifeexpectancy come from of Ž cialgovernment projections. Forexample, actuaries forthe U.S. SocialSecurity Administration project life expectancy of 83 years for 2080(sexes combined). Their projections arein linewith the views of researchers who believethat itwill become increasingly dif Ž cultto achieve gains as weap- proach biologicallimits to human longevity(Olshansky and Carnes, 2001).How- ever,past projections byof Ž cialgovernment agencies of longevity gains have been 172Journal of Economic Perspectives

systematicallytoo low relative to actual outcomes(Keilman, 1997; National Re- search Council, 2000).Indeed, old-agemortality has beendeclining at an acceler- atingrate in recent decades (Kannisto, Lauritsen,Thatcher and Vaupel,1994). It isat theyounger ages that declineshave beenslower. Fora closerlook at mortalitytrends, itisconvenient to usethe United Nations classiŽ cation ofcountries according totheirrecent economic development status as MoreDeveloped Countries, Less Developed Countries and LeastDeveloped Coun- tries.The More Developed Countries, with 1.2 billion people, include all of Europe, plus NorthAmerica, Japan, Australiaand NewZealand. TheLeast Developed Countries,with 0.7 billion, include most of sub-Saharan Africa,plus Bangladesh, Cambodia and afewother countries. All other countries are Less Developed, includingIndia, China and thebulk of the world ’spopulation — 4.2billion people. 5 One can questionthe relevance of using membershipbased on recentexperience tocategorize groups ofcountriesin earlier periods or far in the future, but onnet, this divisionseems useful. Figure1 plotsglobal trends in lifeexpectancy since 1950 and U.N. projections to2050. For the Least Developed Countries, life expectancy rises from 35.7 years in 1950–1954to 48.7 years in 1995 –1999,or .29 years per year. For the Less Developed Countries,the increase has beenfrom 41.8 to 65.4 years, or .52 years per year; a very rapidincrease, indeed. For the More Developed Countries, the increase has been from66.1 to 74.8, or .19 years per year. 6 Whilethe overall increase in life expectancy is marked, two recent counter- vailingtrends deserve mention. Figure 1 shows astagnation inmortality gains for theLeast Developed Countries in the 1990s, re  ectingincreasing mortality from HIV/AIDSin sub-Saharan Africa.In thepast 20years,more than 60millionpeople have beeninfected by HIV/AIDSworldwide, of whom 40 millionare still alive. Of thesecases, only6 percentare in MoreDeveloped Countries, while in sub-Saharan Africa,HIV/ AIDShas becomethe leading cause ofdeath. TheUnited Nations projects that insome African countries, more than two-thirdsof children aged 15yearsin 2000will become infected with HIV/ AIDSbeforethey reach 50yearsof age(United Nations, 2002).For the 35 countries in Africa most affected, life expectancyat birthhas beenreduced on averageby 6.5 years in the late 1990s, an effectthat isprojected to rise to 9.0 years in 2000 –2005. Theother main exceptionto thegenerally favorable recent trends in mortality isfound incountriesof easternEurope and formerterritories in theSoviet Union, which have experiencedstagnating ordeclining life expectancy over the past twoor threedecades, predatingthe dif Ž cultiesof the transition to market economies.

5 In U.N. terminology,the LessDeveloped Countries include the LeastDeveloped Countries as asubset unlessotherwise indicated. In this paper,however, these categories are mutually exclusive. 6 In this Ž gure,the Oeppen-Vaupelextension starts at the lifeexpectancy level of the averagesexes combinedin the MoreDeveloped Countries rather than that offemales in Japan and, consequently, onlyreaches 86.9 by mid-centuryinstead ofthe 97.5referred to earlier in the text. RonaldLee 173

Figure 1 Pastand ProjectedLife Expectancy at Birth,by MajorDevelopment Groups, 1950–2050

90 Oeppen-Vaupel

80 d e

v 70 i L

More Developed s r a

e 60 Y

e g

a Less Developed r e

v 50 A

40 Least Developed

30 1950 1960 19701980 1990 2000 2010 2020 2030 2040 2050 Sources: Historicaland MiddleSeries forecasts are taken fromUnited Nations (2003). Recordlife expectancytrend is taken fromOeppen and Vaupel(2002).

Malelife expectancy in the Russian Federationis now 60years,equal to its level in theearly 1950s (United Nations, 2002)and similarto that ofIndia; Russian women have done somewhatbetter. As longevityhas increased,the female advantage inlife expectancy has also risen.In theMore Developed Countries, the sex gap inlife expectancy has increasedfrom 5.0 years in theearly 1950s to 7.4years today. In theLess Developed Countries,it has grownfrom 1.7 years to 3.6 years today. In theMore Developed Countries,these trends are partly explained by the later date at which womentook up smoking,and wecan expectsome reversal of the growing gap, as isnow happening inthe United States, where smoking-related deaths ofwomen were risingrapidly from 1975 to 1995, while they fell rapidly for men (Pampel, 2002, pp. 98 –99).The sex difference in life expectancy causes an increasingratio of womento men at olderages and, combinedwith a youngerfemale age at marriage, causes adisproportionatenumber of widows. Worldwide, there are 76 percent morewomen than menat ages80 to 89, and thereare Ž vetimes as many women as menover 100 (United Nations, 2002,p. 196).

FertilityTransition Between1890 and 1920,marital fertility began todecline in most European provinces,with a mediandecline of about 40percentfrom 1870 to 1930(Coale and Treadway,1986, p. 44).The preceding decline in mortality may have beenpartly responsible,although itcannot explainthe timing. 174Journal of Economic Perspectives

Most economictheories of fertilitystart with the idea that coupleswish to have acertainnumber of surviving children, rather than birthsper se. If this assumption holds, then once potentialparents recognizean exogenousincrease in child survival,fertility should decline.However, mortality and fertilityinteract in com- plicatedways. Forexample, increased survival raises the return on postbirthinvest- mentsin children (Meltzer, 1992). Some of the improvement in child survival is itselfa responseto parental decisions to invest more in the health and welfareof a smallernumber of children(Nerlove, 1974). These issues ofparental investment in childrensuggest that fertilitywill also bein  uenced byhow economicchange in uences thecosts and bene Ž ts ofchildbearing. Bearingand rearingchildren is time intensive. Technological progress and increasingphysical and human capitalmake labor more productive, raising the valueof time in all activities, which makeschildren increasingly costly relative to consumption goods. Sincewomen have had primaryresponsibility for childbearing and rearing,variations in theproductivity of women have beenparticularly impor- tant. Forexample, physical capitalmay substitute for human strength,reducing or eliminatingthe productivity differential between male and femalelabor, and thus raisingthe opportunity cost ofchildren (Galor and Weil,1996). Rising incomes have shiftedconsumption demand towardnonagricultural goods and services,for which educated laboris amoreimportant input. Arisein thereturn to education then leadsto increased investments in education. Overall,these patterns have severaleffects: children become more expensive, their economic contributions are diminishedby school timeand educated parents have highervalue of time, which raisesthe opportunity costs ofchildrearing. Furthermore, parents withhigher incomeschoose todevote more resources to each child, and sincethis raisesthe cost ofeach child, italso leadsto fewerchildren (Becker, 1981; Willis, 1974, 1994). Beyondthese tightly modeled theories of fertility, more highly developed marketsand governmentscan replacemany ofthe important economic functions ofthe traditional family and household, likerisk sharing and provisionof retire- mentincome, further weakening the value of children. Theimportance of contraceptive technology for fertility decline is hotly de- bated, withmany economistsviewing it as ofrelatively little importance. The Europeanfertility transition, forexample, was achievedusing coitusinterruptus. This debateextends from the interpretation of the past toprescriptions for current policy(Pritchett, 1994; Gertler and Molyneaux,1994; Schultz, 1994). Figure2 plotsfertility for countries by development status since1950, with UnitedNations projectionsto 2050.The transition in the More Developed Coun- triesoccurred before this chart begins.Thus, forthe More Developed Countries, the chart re ectstheir baby booms and busts afterWorld War II, followedby what issometimes called the “second fertilitytransition, ” as fertilityfell far below re- placementlevel in many industrialnations (Van deKaa, 1987).The Less Developed Countriesbegan thefertility transition in the mid-1960s or somewhatlater. Fertility transitions sinceWorld War IIhave typicallybeen more rapid than those forthe TheDemographic Transition: Three Centuries of Fundamental Change 175

Figure 2 Pastand ProjectedTotal Fertility Rate by MajorDevelopment Groups, 1950 –2050

7 Least Developed

6

5

n Less Developed a m

o 4 W

r e p

s 3 h t r i B 2 More Developed 1

0 1950 1960 19701980 1990 2000 2010 2020 2030 2040 2050 Source: Historicaland MiddleSeries forecasts are taken fromUnited Nations (2003). currentMore Developed Countries, with fertility reaching replacement in 20 to 30yearsafter onset forthose countriesthat have completedthe transition. Fertility transitions ineastAsia have beenparticularly early and rapid, whilethose insouth Asia and LatinAmerica have beenmuch slower(Casterline, 2001). In the25 years between1965 and 1990,their total fertility rate fell from six children per woman to three.The Least Developed Countries started from a slightlyhigher initial level of fertilityand startedtheir fertility transition later. By now, itis clear that they,too, have begunthe transition, and thequestion about theirfertility transition is no longer “whether,” but rather “how far” and “how fast.” Currently,60 countrieswith 43 percent of the world ’spopulation have fertility at orbelowthe replacement level of 2.1children per woman. Of these,43 are More DevelopedCountries, but 17areLess Developed Countries. The total fertility rate has fallenwell below replacement for almost all the industrialized countries and for many countriesof east Asia, includingTaiwan, south Koreaand China. When fertilitydeclines, it declines most at theyoungest and oldestages and becomesconcentrated inthe20s and early30s. Currently,two-thirds of childbear- ingoccurs betweenages 20 and 35in the Least Developed Countries, whereas 80percent occurs inthis agerange in the More Developed Countries. Birth rates aboveage 35 are only one-seventh as high inthe More Developed Countries as in theLeast Developed Countries and onlyone- Ž fth as high belowage 20. Despitethis generalreduction in fertilityat olderages, ageat Ž rstmarriage and Ž rstbirth are generallymoving to older ages throughout theindustrial and much ofthe devel- opingworld. The rising age of childbearing itself depresses the total fertility rate, 176Journal of Economic Perspectives

which isa syntheticcohort measure,below the underlying completed fertilities of generations.When theaverage age of childbearing stops rising,as itmust sooner orlater, the total fertility rate should increaseto this underlyinglevel. In many countriesof Europe, women ’smeanage at birthof the Ž rstchild has beenrising by0.1 to 0.4 years of age per calendar yearin recentdecades, distortingthe total fertilityrate downward by10 to 40 percent relative to the eventual completed fertilityof generations (Bongaarts, 2001). TheU.N. fertilityprojections in Figure 2 show acontinuing slowtransition in sub-Saharan Africaand theother Least Developed Countries, while fertility decline forthe Less Developed Countries decelerates as itapproaches replacementlevel. Thefertility of the More Developed Countries is projected to return toward replacementlevels. These projections are plausible, but fertilityhas provenvery difŽ cultto forecast in the past. Most ofthe theories of fertility, as wellas the experienceof the More Developed Countries, imply that thedemand forchildren willcontinue todecline in thefuture. But these theories point tono natural lower bound forfertility. Nor do theyprovide a mechanism forfertility to respond to economicsignals in such awaythat population wouldequilibrate, as Ihave argued itdidin thepreindustrial past. In much oftheworld, fertility has infact fallento levelswell below the 2.1 births per woman that wouldjust replaceone generation bythe next, and itis not yetclear whether it will fall farther, rebound toward replacementor stay at currentlevels.

PopulationGrowth Thecombination offertility and mortalitydetermines population growth,as shown inFigure 3. Thehorizontal axis of the Ž gureshows lifeexpectancy at birth. Thevertical axis shows thetotal fertility rate. The contours illustratethe steady-state population growthrate corresponding to constant fertilityand mortalityat the indicatedlevel, where the dark contour representszero population growthand movementtoward the upper right corner indicates increasingly rapid growth. (Caveat: Steady-stategrowth rates will differ from actual growthrates due to evolutionsin the age distribution and tonet migration.) On this graph, the demographictransition will Ž rstappear as amoveto theright, representing a gain inlife expectancy with little change infertility and amovementto a higher population growthcontour, then, as adiagonal downward movementtoward the right re ectingthe simultaneous decline in fertility and mortality,recrossing contours towardlower rates of growth. Between1950 and 2050,the actual and projectedtrajectories for the More, Lessand LeastDeveloped Countries are plotted. To add morehistorical depth, I have added twohistorical trajectories. One isatrajectoryfor Europe from 1800 to 1950.The end point ofthis trajectoryin 1950is quiteclose to the start point forthe moredeveloped countries. I have also added thetrajectory for India from1896 to 1970,illustrating the earlier stages of the demographic transition that aremissing forthe Less and LeastDeveloped Countries before 1950. RonaldLee 177

Figure 3 LifeExpectancy and TotalFertility Rate withPopulation Growth Isoquants: Past and ProjectedTrajectories for More, Less and LeastDeveloped Countries

Sources: Historicaland MiddleSeries forecasts for Least, Lessand MoreDeveloped Countries are taken fromthe United Nations (2003). Data forIndia aretaken fromBhat (1989) forthe period 1891–1901 to 1941–1951,and fromthe United Nations (2003) forthe period1950 –1970.Data for Europeare based on Tables6.2 –6.5 inLivi-Bacci (2000) forthe period1800 –1900and Mitchell (1975) forthe period1900 –1950.For the period1800 –1900,European total fertility rateand e(0) arederived as apopulation-weightedaverage of country-speci Ž cdata. Whereunavailable, these data areestimated based on regressionusing the crudebirth rate and death rates topredict total fertility rate and e(0), respectively,for other European countries in this period.For the period1900 –1950, a singleseries of crude birth rates and death rates forall Europe are assembled. A regressionbased on data from1900 to 1950 is used to predict total fertility rateand e(0) basedon the crudebirth rate and death rate, respectively.The growth isoquants are derived from Coale and Demeny(1983) using the ModelWest Femalelife table when the meanage of childbearingis 29.

Thestarting points ofthese demographic paths differsomewhat. India had higherinitial fertility and mortalitythan Europe,as didthe Least Developed Countriesrelative to the Less Developed Countries in 1950,which inturn had far highermortality and fertilitythan theMore Developed Countries in that year. Exceptfor India, thestarting points allindicate moderate (for Europe) to rapid (forLeast and LessDeveloped Countries) population growth.But in all cases, the initialpath ishorizontally to the right —moststrikingly for India —indicatingthat mortalitydecline preceded fertility decline, causing acceleratingpopulation growth 178Journal of Economic Perspectives

Figure 4 PopulationGrowth Rates, 1750 –2150

Source: Thepopulation growth rates arecalculated as instantaneous (exp(rt)) rates basedon populationdata. Thedata for1750 –1950are taken fromTables 1 and 2ofUnited Nations (1999) and for 1950–2150are taken fromUnited Nations (2000). approaching 3percentfor the Less and LeastDeveloped Countries. After fertility beginsto decline,the trajectories slope diagonally down towardthe right, recross- ingcontours towardlower rates of population growth.Europe brie  y attains 1.5percent population growth,but then fertilityplunges, adeclinepicked up after 1950by the group, endingwith population declineat 1percentannually. However, theactual Europeanpopulation growthrate is very near zero: slightly higher than hypotheticalsteady-state growth rate due to changes intheage distribution and in immigration.All three groups areprojected to approach thezero-growth contour by2050, the More Developed Countries from below and theLess and Least DevelopedCountries from above. Therehas beenrapid global convergence in fertility and mortalityamong nations overthe past 50years, although importantdifferences remain. This con- vergenceof fertility and mortalityis in markedcontrast toper capita GDP,which has tendedto diverge between high-income and low-incomecountries during this time.Today, themedian individual lives in a country witha totalfertility rate of 2.3— barelyabove the 2.1 fertility rate of the United States —and amedianlife expectancyat birthof 68 yearscompared to 77 yearsfor the United States (Wilson, 2001). Actual trendsin population growthrates can beseen over a longertime period inFigure 4. Data before1950 for the Less Developed Countries (which here TheDemographic Transition: Three Centuries of Fundamental Change 179

Figure 5 Populationby MajorDevelopment Groups, 1950 –2050,with High and Low ScenarioForecasts for Total World Population

11 o 10 ari en Sc gh 9 Hi

e 8 ow Scenario Least Developed l L p

o 7 e P 6 f o

s 5 n o i

l 4 l Less Developed i

B 3 2 1 More Developed 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Source: Historicaland MiddleSeries forecasts are taken fromUnited Nations (2003), as areHigh and Lowscenarios. includethe Least Developed Countries) are particularly uncertain. Population growthrates in the More Developed Countries rose about ahalf percentabove those inthe Less Developed Countries in the century before 1950. But after World War II, population growthsurged in the Less Developed Countries, with the growth ratepeaking at 2.5percent in the mid-1960s, then droppingrapidly. The global population share ofthe More Developed Countries is projected to drop fromits current20 percentto only 14 percentin 2050.Long-term U.N. projectionssuggest that globalpopulation growthwill be close to zero by about 2100. Globalpopulation projections areregularly prepared by the United Nations and theU.S. Census Bureau. Themethod could bedescribed as common sense, informedby careful measurement and inspectionof trendsand currentlevels and adistillationof historical patterns ofdecline for fertility and mortality. 7 The central currentprojections fromthe United Nations, which areconsistent withsome other globalprojections, anticipatethat globalpopulation willreach 8.9 billion by 2050 and just below9.5 billion by 2100 —a50percent increase from its current size (see Figure5). TheNational Research Council (2000,p. 213),based on acareful analysis ofpast forecastingerrors by the United Nations, concluded that thereis a 95percentprobability that theactual population in2050will fall between 8.2 and 10.2billion. A comparableanalysis cannot bedone forthe 2100 forecasts, but the

7 Themethods, problems and performanceof these projections, as wellas earlierones by the World Bank, aredescribed and analyzedin a recentreport from the NationalAcademy of Sciences(National ResearchCouncil, 2000). 180Journal of Economic Perspectives

UnitedNations ’ high-lowrange extends over a verywide interval from 5.2 to 16.2billion. This greatuncertainty must bekept in mindwhen consideringall the projectionsof fertility, mortality and population sizefor the twenty- Ž rstcentury. Thepopulation projectionfor the More Developed Countries population is nearly  at, withpopulation decreasein Europe and Japan offsetby population increasein the United States and otherareas. Most ofthe projected population increasetakes place in the Less Developed Countries, which gain1.8 billion, or 43percent.However, the greatest proportional gain comes in theLeast Developed Countrieswith their higher fertility and morerapid growth. These countries gain 1billionin population, or151 percent. The relative shares ofthe three groups will change agood dealover the next 50 years.

Shifts in Age Distribution: TheLast Stage of the Demographic Transition

Thepatterns ofchange infertility,mortality and growthrates over the demo- graphictransition are widely known and understood. Lesswell understood arethe systematicchanges inagedistribution that arean integralpart ofthe demographic transitionand that continue longafter the other rates have stabilized.

AClassicExample: The Case of India Thepanels ofFigure6 displaya classic demographictransition, using India as an example.The starred points inthe Ž guresare actual data fromIndia from1896 to2000. The hollow points arebased ontheU.N. projectionsfor India ’smortality, fertilityand population up through 2050.The lines in Panels Aand Baresimple analyticfunctions Ž ttothehistoric fertility and mortalitydata, and thelines in the otherpanels aresimulated based on theseand theinitial population. 8 In India, the pretransitionaltotal fertility rate is about sixbirths per woman (PanelA), and life expectancyis about 25years (Panel B). India ’smortalitydecline leads its fertility declineby 50 years. The fertility transition here is slow relative to East Asia ’s, but similarto Latin America ’s. Thesetrends interact to create a population growthrate that rosefrom less than 0.5percent per year in 1900 to more than 2percentper yearby 1950 before starting to decline (Panel C). India ’stotalpopulation quadru- pledin thetwentieth century and isprojected to increase by another 60percent in the twenty-Ž rstcentury, with the growth rate of thepopulation levelingout tonear zeroby 2100 (Panel D).

8 Thetotal fertility rateis modeled as aquintictrajectory, decliningfrom 5.9 in1953 to 2.1 in2025. Mortality ismodeled using the Leeand Carter(1992) mortalityindex k, which is Ž ttoa sinusoidalpath, with lifeexpectancy going from 24.7 in 1900 to 80.0 in 2100.Many othercurves could equally well have been used. RonaldLee 181

Figure 6 AClassicDemographic Transition: Actual and Projectedfor India and Simulated, 1900–2100

Notes: Thesimulation is based on afertility transition inwhich the total fertility ratefollows a quintic path decliningfrom 5.9 in1953 to 2.1 in2025and amortalitytransition inwhichthe mortality indexfollows a sinusoidalpath as e(0) increasesfrom 24.7 in 1900 to 80.0 in 2100. Sources: Actual India data forthe period1891 –1901 to 1941–1951are taken fromBhat (1989). Actual and projecteddata aretaken fromUnited Nations (2003).

Butthe focus hereis on shifts inthe age distribution that resultfrom the demographictransition. Theseshifts can beseen in the “dependencyratios, ” which takeeither the younger or the older population and divideby the working-age population. Forexample, the child dependency ratio is the population aged0 –14 182Journal of Economic Perspectives

dividedby the population aged15 – 64.9 Theold-age dependency ratio is usually deŽ ned as thenumber of those 65and olderdivided by the population aged15 – 64. The “oldest old” dependencyratio looks at those 85yearsand older,divided by the workingage population. Finally,the total dependency ratio takes the sum ofthe population under15 and over65 and dividesit bythepopulation inthe interme- diaterange of 15 – 64. In the Ž rstphase ofthe transition, when mortalitybegins to decline while fertilityremains high, mortalitydeclines most at theyoungest ages, causing an increasein theproportion of childrenin the population and raisingchild depen- dency ratios,as shown inPanel E. Thus, counterto intuition, mortality decline initiallymakes populations youngerrather than olderin aphase that can lastmany decades and herelasts 70years. During this phase, families Ž nd themselveswith increasingnumbers of surviving children. Both familiesand governmentsmay struggleto achieve educational goalsfor the unexpectedly high numberof children. Next,as fertilitydeclines, child dependency ratios decline and soon fallbelow theirpretransition levels. The working-age population growsfaster than thepop- ulationas awhole,so thetotal dependency ratio declines. This second phase may last40 or50 years.Some analysts have worriedthat therapidly growing labor force inthis phase mightcause risingunemployment and fallingcapital labor ratios (Coaleand Hoover,1958). Others have stressedthe economic advantages ofhaving arelativelylarge share ofthe population inits working years, calling these a demographicgift or bonus (Williamsonand Higgins,2001; Bloom, Canning and Malaney, 2000).In India, thebonus occurs between1970 and 2015.If incomeper person ofworking age is unaffected, thedecline in dependents perworker would byitself raise per capita incomeby 22 percent,adding 0.5percent per year to per capita incomegrowth over the 45-year span. Thereis considerable controversy about whetherthis demographicbonus reallyaffects economic development, con- tinuingdebates from the 1980s (National Research Council, 1986;Kelley, 1988; Birdsall,Kelley and Sinding,2003). In athirdphase, increasinglongevity leads to a rapidincrease in the elderly population whilelow fertility slows the growth of theworking-age population. The old-agedependency ratio rises rapidly, as does thetotal dependency ratio. In India, this phase occurs roughlybetween 2015 and 2060 —and itwould last longer if mortalitydecline were not assumed tocease in the simulation. If theelderly are supported bytransfers, eitherfrom their adult childrenor from a publicsector pension systemsupported bycurrent tax revenues, then ahighertotal dependency ratiomeans agreaterburden on theworking-age population. Totheextent that the

9 In somestudies, the boundaryfor childhood is taken tobe 18 or 20, and forworking ages it maybe taken tobe 60. Any boundaryis arbitrary, as isthe equalweighting of children and eldersin forming these ratios. TheDemographic Transition: Three Centuries of Fundamental Change 183

elderlycontribute to their own support through savingand asset accumulation earlierin their lives and dissavein retirement, population agingmay cause lower aggregatesaving rates as lifecycle savings modelsand someempirical analyses suggest(Williamson and Higgins,2001; Lee, Mason and Miller,2000; but also see Deatonand Paxson, 2000).Nonetheless, even with lower savings ratesthe capital/ laborratio may rise, since the labor force is growingmore slowly (Cutler et al., 1990; Leeet al., 2000).This patternof savingand wealthaccumulation mayarise either through individuallife cycle savings orinstitutional requirement, as inSingapore. Thenet effect would then beto stimulate growth in labor productivity due to capitaldeepening. Attheend ofthe full transitional process forIndia shown inFigure 6, thetotal dependencyratio is back nearits level before the transition began, but now child dependencyis low and old-agedependency is high. Presumably,mortality will continue todecline in thetwenty- Ž rstcentury, so that theprocess ofindividual and population agingwill continue. Nocountry inthe world has yetcompleted this phase ofpopulation aging, sinceeven the industrial countries are projected to age rapidlyover the next three or four decades. In this sense, no country has yet completedits demographic transition.

TheTransition in Age Distribution by CurrentDevelopment Category Thepast and projectedTotal Dependency Ratios for the Least, Less and More DevelopedCountries are shown inFigure 7; that is, thesum ofthe population under15 and over65 yearsdivided by the population inthe intermediate range of 15– 64years. Remember that evenin 1950, the Least Developed Countries had higherfertility and highermortality than theLess Developed Countries, and change sincethen has beenslower for them. The Least Developed Countries movedslowly out ofthe phase ofrising youth dependencyand enteredthe bonus phase around 1980.For these countries, the total dependency ratio is projected to fallsharply from2000 to 2050.At thesame time, the median age is projectedto rise bynine years by 2050, from 18.1 to 27.1 years. TheLess Developed Countries entered the bonus phase earlier,around 1970, and will Ž nish itaround 2020,after which thetotal dependency ratio will be rather  at, sincedeclining child dependency will offset rising old-age dependency. Their medianage is projectedto risestrongly by 13.3 years between 2000 and 2050,from 25.2to 38.5 years. TheMore Developed Countries are out ofthe bonus phase and have already agedconsiderably. They already have themedian age that theLess Developed Countriesare projected to achieve by 2050, at which timethe median age in the MoreDeveloped Countries will have risenanother eightyears to 45.2 years. The totaldependency ratio in theMore Developed Countries is projectedto rise sharply overthe next 50 yearsas theirlow fertility increasingly affects labor force size and thebaby boomgenerations move into old age. 184Journal of Economic Perspectives

Figure 7 TotalDependency Ratio by Levelof Development, 1950 –2050

1.6

1.4 Least Developed

1.2

1.0 Less Developed

0.8 More Developed 0.6

0.4

0.2

0.0 1950 1960 19701980 1990 2000 2010 2020 2030 2040 2050 Source: Historicaland MiddleSeries forecasts are taken fromUnited Nations (2003).

LowerFertility or Longer Life Expectancy? Both lowfertility and longerlife contribute to theaging of the population. But theimplications of these factors forcauses ofshifts inthepopulation distribution and forhow societymight react to the aging of thepopulation arerather different. When population agingis due to declining fertility, it raises the share ofthe elderlypopulation withoutaltering the remaining life expectancy (or the health status orvigor) of olderindividuals. Such agingre  ectsa choicemade by individ- uals toraise fewer children. The desire to have fewerchildren may be related to the riseof public sector pensions, which disconnect old-agesupport fromindividual fertility,and mayhave playedsome role in causing lowfertility in industrialnations. TheLeast Developed Countries as agroupare in the midst of theirfertility decline, which iscausing asubstantial proportionof their population aging.While lower fertilitymay go with reduced total parental expenditures on children,it also raises theratio of elderlyto working-age people, other things equal, withno correspond- ingimprovement in health tofacilitate a prolongationof workingyears. 10 For this reason, population agingdue to reduced fertility may well impose important resourcecosts on thepopulation, regardlessof institutional arrangements for old-agesupport. Bycontrast, population agingdue to decliningmortality is generallyassociated withincreasing health and improvingfunctional status ofthe elderly. While such

10 If lowfertility isassociatedwith increasedhuman capitalinvestments perchild, then thesemight lead tolonger life for those children eventually. RonaldLee 185

agingputs pressureson pension programsthat have rigidretirement ages, that problemis a curableinstitutional one, not afundamental societalresource prob- lem,since the ratio of healthy, vigorousyears over the life cycle to frail or disabled yearshas not necessarilychanged.

Some Consequences of the Demographic Transition

Thethree centuries of demographictransition from 1800 to 2100will reshape the world’spopulation ina numberof ways. Theobvious changes arethe rise in totalpopulation from1 billionin 1800 to perhaps 9.5billion in 2100 —although this long-termestimate is highly uncertain duelargely to uncertaintyabout future fertility.The average length of life increases by a factorof two or three, and the medianage of thepopulation doublesfrom the low 20s to thelow 40s. Many More DevelopedCountries already have negativepopulation growthrates, and the UnitedNations projects that thepopulation ofEurope will decline by 13 percent betweennow and 2050.But many otherchanges willalso beset in motion in family structure,health, institutionsfor saving and supporting retirementand evenin international  ows ofpeople and capital. Atthe level of families, the number of children born declinessharply and childbearingbecomes concentrated intoa fewyears of a woman ’slife.When this change iscombined with greater longevity, many moreadult yearsbecome avail- ablefor other activities. The joint survivorshipof couples is greatlyincreased, and kinnetworks become more intergenerationally dense, whilehorizontally more sparse. Thesechanges appear tobe quite universal so far. However,whether childbearingis concentrated at youngerages or at olderages and whetherage at marriagerises or falls seems to vary from setting to setting, and patterns arestill changing evenin the populations farthestalong in the transition. Parents with fewerchildren are able to investmore in each child, re  ectingthe quality-quantity tradeoff,which mayalso beone of the reasons parents reducedtheir fertility (Becker,1981; Willis, 1974). Theprocesses that leadto longer life may also alterthe health status ofthe survivingpopulation, but thechange could goeither way. Forexample, mortality declinemay permit less healthy or more disabled people to live longer, thereby raisingage-speci Ž cdisabilityrates. Alternatively, the decline in damage from trauma and diseasein earlierlife may reduce rates of disability and illnessas people age.For the United States, it appears that yearsof life added bydecliningmortality aremostly healthy years, and that at any givenage, the health and functional status ofthe population areimproving (Costa, 2002;Manton, Corderand Stallard,1997; Freedman,Martin and Schoeni, 2002).Apparently, years of healthy life are growing roughlyas fast as totallife expectancy, although this ismore clearly true for years freeof mild disability than severe.In otherindustrial populations, thestory is more mixed,and no generalconclusion isyet possible. Trends in health, vitalityand 186Journal of Economic Perspectives

disabilityare of enormous importance for the economic and socialconsequences of agingand, indeed,for human welfaremore broadly. Theeconomic pressures caused bythe increasing proportion of elderly are exacerbatedin the More Developed Countries by dramatic declines in the age at retirement,which forU.S. menfell from 74 yearsin 1910 to 63yearsin 2000 (with theaverage age of retirement measured by the age at which themale labor force participationrate fell below 50 percent; Burtless and Quinn, 2001).Generous publicpension programspermitting early retirement, combined with heavy im- plicittaxes on those who continue working,have playedan importantrole in causing earlierretirement in industrial nations sincethe 1960s (Gruber and Wise, 1999).The growing ratio of retirees to workers is bringingvarious policy responses. So-called “parametric” reformstinker with pay-as-you-go de Ž ned beneŽ t programs, reducingbene Ž ts, raisingtaxes and eliminatingthe incentives for early retirement. Sweden,Italy and someother European countries have introduced “notional deŽ ned contribution ” pension systems, wherebypay-as-you-go systemsmimic de- Ž ned contributionprograms, removing incentives for early retirement and passing on toindividual retirees the Ž nancial risksof rising longevity. Other countries, particularlyin Latin America, are making the painful transitionto funded public systems. Often thesepolicy changes encounter Ž erceopposition fromworkers, but population agingmakes reform inevitable. In somecountries, like the United States,population agingwill generate more intense Ž nancial pressureson publicly funded health caresystems than itdoes on pension systems. Overall,the proportion ofU.S. GDPspent ongovernmentprograms for the elderly is projected nearly to tripleover the next 75 years without reforms, while the public expenditure shares forthe children and workingage people remain relatively  at (Leeand Edwards, 2002). Population aging,together with the growth of age-related public transfer systemsfor pensions, education and health, createsmassive positive Ž scal external- itiesto childbearing. In aginghigh-income nations withgenerous support forthe elderly,the net present value of future taxes minus bene Ž ts foran incremental birthmay be several hundred thousand dollars(Lee, 2001), giving governments a powerfulincentive to encourage childbearing. In developingcountries with youngerpopulations and publicprograms focused on children,the Ž scal external- itiesand incentivesrun intheopposite direction (Lee and Miller,1990). Attheinternational level, there are intriguing issues about theextent to which the  owof people and capitalacross bordersmay offset these demographic pressures.As population growthhas slowedor even turned negative in the More DevelopedCountries, it is not surprisingthat internationalmigration from third- worldcountries has accelerated.Net international migration to the More Devel- oped Countrieshas experienceda roughlylinear increase from near-zero in the early1950s to around 2.3million per year in the 1990s. Of course, thesenet numbersfor large population aggregatesconceal agreatdeal of offsetting inter- national grossmigration  ows withinand betweenregions (United Nations, 2002). TheDemographic Transition: Three Centuries of Fundamental Change 187

Forexample, prior to 1970, Europe was anetsending region,but sincethen ithas beena netreceiver of 17 millionimmigrants. During the past decade, repatriation ofAfrican refugees reversed the net  ows fromthe Least Developed Countries. But overall,while More Developed Countries may seek to alleviate their population agingthrough immigration,U.N. simulationsindicate that theeffect will be only modest, sinceimmigrants also growold, and theirfertility converges to receiving country levels. If in ows ofimmigrants only partially offset population aging,might interna- tional  ows ofcapital offer a wayof cushioning the Ž nancial effectsof population aging?Population agingmay cause decliningaggregate saving rates, but with slowinglabor force growth, capital/ laborratios will probably rise nonetheless and proŽ tratesfall, particularly if thereis amovetoward funded pensions. Capital  ows fromthe More Developed Countries into the Less and LeastDeveloped Countries mighthelp to keep the rate of return earned on pension funds fromfalling. However,simulations indicate that exportingcapital to the younger Less Devel- oped Economieswould help the industrial economies only slightly. The much smallersize of third-world economies would limit the gains (Borsch-Supan etal., 2001). Dramaticpopulation agingis the inevitable Ž nal stageof the global demo- graphictransition, part and parcelof lowfertility and longlife. It willbring serious economicand politicalchallenges. Nonetheless, life in aging,capital-intensive and culturallydiverse high-income countries should bepleasant, providedour institu- tionalstructures are suf Ž ciently  exibleto allowus toadapt ourlife cycle plans to thechanging circumstances and providedwe arewilling to pay forthe health care and theextended retirement that weapparently want. y Researchfor this paper wasfunded by agrantfrom NIA, R37-AG11761. Timothy Miller providedstatistical and computational support. Monique Verrier providededitorial assis- tance.The editors of the journal mademany helpful suggestions. 188Journal of Economic Perspectives

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