If low birth rates and aging populations become the norm, do they inevitably spell disaster for nations? Charles I. Jones, an economist known for his work on long-run economic growth, has explored a future in which sustained population decline leaves our descendants inhabiting an “Empty Planet”. Yet, David Bloom, another prominent economist, argues that “with respect to economic growth, research shows that a population’s productive characteristics are more important than its size.” Both views can be true. The world may simply transition from one scenario to the other, depending on how societies respond.

The outcome depends on whether productivity growth can be sustained or even accelerated as populations shrink. In economic theory, productivity growth is driven by the generation of new ideas. While the number of people matters, so do their knowledge, skills, health and experience. In other words, if improvements in human capital can mitigate the effects of population decline, productivity and living standards can continue to rise.

A natural question is whether this can be achieved in practice. The answer lies not in any single policy, but in a combination of measures that raise the productive capacity of a shrinking workforce and expand society’s ability to generate new ideas.

The first step is to strengthen the incentives for innovation while reducing barriers to knowledge diffusion. Turning new ideas from private goods controlled by monopolistic firms into more widely accessible public goods would free up resources and allow more people to engage in innovation. Governments could, for example, purchase patents for selected innovations and place them in the public domain, thereby reducing monopoly distortions. At the same time, governments can subsidize the key input into innovation—human capital in the form of college graduates with degrees in engineering and natural sciences.

Yet domestic investments in human capital alone may not be sufficient, especially in countries where the working-age population is already shrinking rapidly. A complementary strategy is to attract high-skilled immigrants. In fact, immigrants have played an important role in innovation and firm creation in many advanced economies. By bringing knowledge, expertise and international networks, they facilitate the transfer of ideas and technologies across borders and enhance the diffusion of global knowledge. However, high-skilled immigration remains politically contentious because of concerns about its impact on local labor markets and social cohesion. Policymakers must therefore balance economic gains with broader social considerations.

Even with stronger education systems and greater global talent flows, demographic realities may still constrain the supply of labor. The final layer of adaptation is therefore technological. Artificial intelligence and robotics can help offset labor shortages caused by aging populations. As the supply of middle-aged workers engaged in production declines, firms face stronger incentives to automate routine and labor-intensive tasks. These pressures can stimulate innovation and accelerate the adoption of new technologies. AI has the potential to enhance efficiency in both production and research, increasing the economy’s capacity to generate new ideas. This may explain why countries facing demographic decline often invest heavily in automation and AI-driven technologies.

Nevertheless, these policy responses do not eliminate the distributional challenges associated with population decline. A minimum level of infrastructure and public service provision must be maintained even in regions that are losing population. As the number of residents falls, the per-capita cost of providing these services rises, placing pressure on public finances and productivity. While productivity growth may allow economies to continue growing despite demographic decline, regional disparities may widen in the process. Managing this divergence will be one of the central policy challenges of the decades ahead.

By LIANG, Zixuan

Researchers: LIANG, Zixuan