One of the more striking trends across the developed world in recent decades is the demographic transition. As economies develop, and women in particular enter the workforce, people have fewer children. It’s resulted in a situation in many western nations where the birth rate is insufficient to sustain the population.
Monitoring changes in demographics can provide some interesting insights into the overall health of a society. A recent study by the University of Notre Dame, for instance, suggests that there is a clear link between fertility rates and economic health. It found that people seemed to stop conceiving babies months before economies officially tipped into recession.
Indeed, over the last 30 years, conception rate fell sooner than more traditional barometers of economic health, such as consumer confidence or durables purchases.
“We show that for the last three recessions, conceptions predicted the downturn just as well as traditional economic indicators did,” the authors say.
The data consisted of over 100 million births spanning three decades across the United States. The team were able to hone in on the timing of the births within the year and compare this with economic performance during the same time.
“Once you examine monthly or quarterly data, the pattern becomes obvious,” they explain. “We show the existence and magnitude of this pattern before the Great Recession, and it’s striking since that recession was famously hard to predict. None of the experts saw it coming, and in its first few months, many business leaders were convinced the economy was doing OK—even as the number of conceptions plummeted and had been falling for a while.”
Population and innovation
Entrepreneur James Liang also believes that population can provide telltale clues as to the innovative capabilities of a nation. He argues in his latest book The Demographics of Innovation that population growth is vital for innovation and entrepreneurship.
He argues that demographics have a huge part to play in innovation, and outlines three core ways they impact a country’s creative output:
- The scale factor – Economies of scale are well known in business, but Liang argues that scale is also vital for innovation. Not only do countries with high populations have more researchers etc., but crucially, they have a large domestic market for budding innovators to sell to.
- The agglomeration factor – This can be seen with the emergence of innovation hubs, such as Silicon Valley, in recent decades. Liang argues that a large population is not enough if that population is not fairly well concentrated. Cities and hubs benefit from the concentration of talent and resources in one place.
- The age factor – The age of the population is also important. Liang suggests that 72% of the greatest inventions in history were made by inventors in their 30s and 40s. This is because they have had time to gain an education but are not sufficiently embedded into the status quo to see no other way of working.
Liang draws an analogy with companies whose success is largely driven by their human resources, both in terms of the number and quality of people available.
“Similarly, for a country, the ultimate drivers of innovation are all connected to its population, primarily its size, distribution and age makeup,” he says.
Demographics are not perhaps the first place we look to when it comes to trying to understand innovation, but there is clearly much to be learned from looking at economics through the lens of demography. This is especially so as governments are increasingly promoting innovation as part of wider industrial strategies. Demographic policies aren’t often included in these strategy documents, but it’s perhaps time they were.
