Policy mix needed to stem economic impact of population decline

With Wales’ working age population ageing and in decline, the Wales Centre for Public Policy has reviewed international approaches to this trend and found that a mix of policies to increase fertility and encourage population retention and attraction could help minimise a major economic challenge.

Trends in fertility and mortality in Wales have resulted in an increasing excess of deaths over births since 2015/16. The Total Fertility Rate in Wales fell below the replacement rate (of 2.1) in 1974 and has remained there since, standing at just 1.5 births per woman in 2021.

The Welsh population is projected to have a growing share of the elderly, a slowly decreasing share of working-age people, and a decreasing share of the young. There is a real risk of population decline, especially among the younger and working age populations, and if in-migration falls.

This combination of factors poses significant risks to the economic and fiscal wellbeing of Wales. The impacts of this could include changes in the demand for goods and services, such as public services, a shrinking labour force, a smaller tax base, and reduced block grant from the UK Treasury.

The trend of population ageing and risk of population decline are not unique to Wales. Many countries, such as Italy and other European countries and Japan, have begun experimenting with a range of policies to respond to these trends.

The Welsh Government commissioned the Wales Centre for Public Policy (WCPP) to conduct a review and synthesis of the best available evidence on how other countries are responding to the fiscal challenges of population ageing and decline, particularly in terms of policy approaches to maintaining and increasing the size of the young and working-age populations. This work focussed on three key responses to potential population ageing and population decline:

  • Enabling and encouraging fertility
  • Retaining people, especially young and skilled workers
  • Attracting inward migrants, especially young and skilled workers

One of the key findings of the report is that pro-family policies, which encourage people to make the choice to have children, such as parental leave and childcare, have the strongest evidence base in relation to boosting fertility. However, such policies will only have the desired effect on the tax base over the longer-term, and only if those children decide to remain in Wales into their working lives. As such, the role of population retention and inward migration will also be key.

Amanda Hill-Dixon, WCPP Senior Research Fellow said: “Our evidence review has shown that there are concrete steps which the Welsh Government can take to mitigate against population ageing and decline in Wales.

“Wales’ population is changing with decreasing births and an ageing population. It is vital that the Welsh Government and public services consider the impact that these trends could have on the economy, as well as on public services and communities.

“While these shifts open up potential opportunities, such as reduced environmental pressures, there are also significant risks to consider such as a reduced tax base and increased demand for health and social care services. We explored the evidence base related to international approaches to boosting the size of the population, future tax base and workforce.

“Other countries’ approaches to boosting fertility follow two broad paths: socio-economic measures, which encourage parents to make the choice to have children, such as baby bonuses, parental leave, and childcare provision; and medical interventions designed to ensure that parents are physically able to have children once they have made the choice, such as Assisted Reproductive Therapy. In either case, policy should focus on enabling people to have the number of children they desire.

“Overall, evaluations of family policies around the world suggest that one-off pro-natal incentives such as baby bonusses generally have negligeable long-term effects on fertility rates but that ‘policy mixes’ of complementary family-friendly interventions such as childcare support, work-life balance and flexible work can make a significant impact.

“However, any increase to the fertility rate in Wales will take many years to have a desired impact on the tax base and only if those children decide to remain in Wales into their working lives. As such, population retention and attraction of migrants is key.

“In terms of retaining young and working-age populations in Wales, graduate retention schemes could focus on work placements and on simplifying attraction and retention processes. Local Authorities also have a role to play in attracting people to their areas through relocation grants and other incentives, and by helping to foster strong pull factors such as jobs, housing, public services and leisure.

“It would also be advisable to involve many stakeholders in devising repopulation schemes to better determine where and which groups the local economy needs.

“Our evidence review has shown that there are concrete steps which the Welsh Government can take to enhance the extent to which Welsh communities are places in which people want to and are able to have children, but also where people want to remain throughout their working lives.”

Click here to download the full report, policy briefing and think pieces.

For more info, contact communications officer via liz.clutton@wcpp.org.uk