China’s shrinking and ageing population is widely seen as an economic threat, but new research suggests labour scarcity can accelerate automation, boost productivity and sustain growth despite a smaller workforce.
Research co-authored by Nobel laureate Daron Acemoglu finds labour shortages can spur, rather than slow down, productivity and growth.
There is little in common between Daron Acemoglu and Xi Jinping. As a strong advocate of the Western model of liberal democracy, Acemoglu, co-recipient of the 2024 Nobel Prize in economics, may be considered the ideological opposite of the Chinese president.
But on a crucial point about China’s future, the two may, strangely, be on the same page: an across-the-board introduction of cutting-edge technology may enhance productivity and maintain economic growth. It may counteract the negative impact of drastic population decline in the decades ahead.
While that may be an emerging consensus among economists and other social scientists, it still runs counter to the popular narrative that a rapidly greying China is doomed. The official figures released in January, for example, set off alarmism. China’s population fell by 3.39 million last year to just over 1.4 billion – a fourth consecutive decline and the steepest so far. Births dropped by 17 per cent to 7.92 million, the lowest since records began in 1949. Roughly 323 million Chinese, close to a quarter of the population, are now over 60.
The reaction was swift and familiar: China will grow old before it grows rich, its workforce will hollow out, its pension system will buckle, its ascent will end.
Some concerns are warranted. If 2.1 children per woman is the population replacement rate, then those countries with the lowest birth rates – China at 0.63, Japan at 0.6, and South Korea at 0.46 – are projected by 2050 to experience population declines of 20–30 per cent relative to 2023; their share of the population aged 65 and over to reach 30–40 per cent; and older workers (aged 45 and over) to comprise 60 per cent of the labour force.
But that’s not the whole story. In fact, much of it is missing, and the alarm has outrun the analysis. “What if the historical evidence tells us that collapsing birth rates, paradoxically, are good for the economy,” economist Joeri Schasfoort asks in his YouTube channel, “because they force companies to innovate?”
He was referring to a groundbreaking paper, ‘Baby Busts and Growth Booms: Demographic Change and the Macroeconomy’, which was published in July by the National Bureau of Economic Research in the United States and has attracted widespread interest in academic and policymaking circles.
The four economists – Acemoglu, David Autor, Keelan Beirne and Andrew Scott – studied seven decades of demographic change across more than 100 countries and 722 American local labour markets. They find that countries where birth rates fell earlier and further did not grow more slowly. Rather, they grew faster per head, and total output did not decline.
“Contrary to the widespread expectation that these trends hamper economic growth, we find lower birth rates are associated with higher growth in GDP per working-age adult across countries and higher wage growth across US commuting zones, with no negative impact on aggregate GDP or earnings,” they wrote.
They found that these patterns could not be explained by educational upgrading and other likely factors. Rather, they reflected “the endogenous, labour-saving response of technology to the scarcity of younger workers”.
The size of the effect is striking. A country with a birth rate one percentage point lower in 1950 saw income per working-age adult roughly a quarter higher 50 years later, or about half a percentage point (0.46 per cent) of additional growth every year, compounding across two generations. The same pattern appears in American regions, measured through wages.
There is an obvious mathematical objection: the same output divided among fewer workers naturally produces a higher figure per worker. But the study finds no meaningful decline in total output either. Something is compensating for the missing hands.
The authors argue that it’s technology. When young workers become scarce and expensive, employers buy machines. Economies with falling birth rates register faster productivity growth, heavier investment in equipment, a shift of employment from labour-intensive industries towards research-intensive ones, and more patenting in automation. The productivity gains are large enough to offset the lost labour entirely.
The most persuasive test uses the second world war. Military casualties fell overwhelmingly on young men; civilian casualties fell across all ages. Fifty years later, countries that lost population to civilian deaths were poorer per head. Those that lost young men were measurably richer. It is not population loss that damages an economy, but the wrong kind of it.
As the economists wrote: “Exploiting cross-country variation in WWII military and civilian deaths, we find that declines in younger population, rather than population size per se, drive our results [of productivity and growth].”
China’s record is consistent with this. It does not have a labour shortage; rather the opposite. Youth unemployment reached 17.9 per cent in July as a record 12.7 million graduates entered the market. That is an argument for patience rather than panic: the cohorts that will genuinely be scarce are yet to come.
Its factories installed 295,000 industrial robots in 2024 – 54 per cent of the global total – bringing the operational stock past two million units, the largest anywhere. Robot density rose 17 per cent in a single year, and Chinese manufacturers outsold foreign suppliers at home for the first time. That’s 166 robots per 10,000 employees, according to China’s statistics bureau. Robotics, artificial intelligence and advanced manufacturing sit at the centre of the 15th five-year plan. The economy grew by 5 per cent last year on a record trade surplus.
None of this neglects genuine problems. The state pension fund for urban workers may be exhausted by the middle of the next decade. In 2023, 11 of 31 provinces were running deficits. But that is a question of who pays, not whether the wealth exists. If output holds steady while the workforce shrinks, the resources are there. Moving them from prosperous coastal provinces to depleted industrial ones is a political task, not a demographic one.
The researchers themselves are cautious. The decline in China, they note, will be faster and larger than anything in their data, and their evidence for the technological mechanism is indirect. Or, as Schasfoort has observed, their findings describe the past and may not predict the future.
However, that caution cuts both ways. The pessimistic case rests entirely on projections. The optimistic case rests on what has actually occurred across 70 years and most of the world.
China now contemplates spending an estimated 180 billion yuan (US$26.76 billion) this year alone to lift the birth rate – subsidies, free preschool, funded fertility treatment. Japan, South Korea, Taiwan and Singapore have all tried variations of this, with more generous provisions and greater personal freedom. All have failed.
The focus should be on preparing for a smaller, older, more automated workforce than trying to get women to have more babies when most other socio-economic factors cause them to have fewer or no children.
Demography is not destiny. Beijing should focus on fighting the right war – advancing technology on all fronts.
Republished from South China Morning Post
Alex Lo has been a Post columnist since 2012, covering major issues affecting Hong Kong and the rest of China. A journalist for 25 years, he has worked for various publications in Hong Kong and Toronto as a news reporter and editor. He has also lectured in journalism at the University of Hong Kong.